Counter Economics

As more information has come to light about the bailout it has become apparent that Secretary of Treasury Henry Paulson is non simply incompetent, as originally thought, but is acting in ways that are illegal and counter to the public interest. The effects of Paulson’s actions promise to negatively reverberate in this country for decades unless something is done to reverse the course taken by Paulson and by the TARP program.

Paulson’s Crimes

We want to be very specific about Paulson’s crimes and why we think they are prosecutable. This is our list:

1. Lying to congress about the financial threat in order to get TARP passed
2. Altering tax law in order to make it appealing for banks to buy other banks tax free
3. Directing TARP money to favored friends of Goldman Sachs and the Bush Administration

The upshot is that Paulson has overstepped his authority as Treasury Secretary and has caused serious long term damage to the United States economy and democracy. Paulson is no longer operating as a Secretary as much as a kleptocrat attempting to extract the most from taxpayers prior to his leaving office. It is no surprise that his former employer, Goldman Sachs was one of the first institutions to get the first allocation of the TARP funds.

Size of Bailout

The size of the bailout is truly staggering. TARP is only one small piece of the mammoth bailout puzzle. According to Mother Jones, the bailout has cost 3.4 trillion as of early January, other estimates go much higher and are hard to calculate because it is difficult to say if many of these “loans” will ever be paid back. The bailout is nowhere close to finished. To provide an idea of this relative size, the US economy in 2008 was roughly $13.4 trillion. This means that we have spend 1/4 of the US economy’s output in roughly four months. (the US cost of WW2 adjusted for inflation was $3.6 trillion) This has never happened at any time in US history. None of this money is going to help ordinary people, but is all going to institutions….that were directly responsible for this crisis.

How much more the bailout will cost is dependent upon how much the public is willing to tolerate a continuation of the biggest giveaway since the real estate giveaways to the railroads over a century ago. If the public accepts more bailouts/giveaways, the giveaways will continue, because everyone loves free money. The last was the the automotive industry, next up is Big Steel. They would like $1 trillion.

No Accounting

Amazingly TARP has not required any accounting or oversight of where the money is going. A number of banks have been asked to provide accounting and they are providing none. One stated that they are not providing “dollar in dollar out accounting.” In today’s world of false financial terminology, this means is no accounting at all. The banks can do whatever they like with the money. According to David Vladeck of Georgetown, there is nothing in the bailout bill requiring the banks to report where the money was spent. Loans are not becoming more plentiful, because the collateral to make loans against is gone. Banks instead are placing funds in short term Treasury bonds. 

No Review

Paulson has made TARP non-reviewable. In this undisclosed clause of TARP it states – “Sec. 8 of the Treasury plan bans any Congressional review, giving him unprecedented power by: “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” Under cover of emergency force majeur conditions, the plan is to take the money and run, preferably without permitting any Congressional debate.” If this act were such a good deal, one wonders why this clause was put in place. Joseph Stiglitz has compared it to the type of bill a third world nation would pass.

Financial Concentration

Paulson has not only misappropriated taxpayer dollars, but through changing the how bank acquisitions are expensed and by making losses of acquired banks immediately tax deductible with no depreciation schedule, Paulson is effectively promoting bank concentration. This was denied in Congressional testimony by Neel Kashkari, but it certainly looks that way. In fact, acquiring banks appear to be using TARP funds to make bank acquisitions. Treasury is also forcing some well capitalized banks to be acquired by favored banks as in the National City bank and PNC acquisition. Unknown to most, this concentration is changing how planning will be done in the future. We quote from Michael Hudson:

“As you’ve seen on Wall Street, when economic planning is centralized in the hands of Bear Stearns, Citibank, Chase Manhattan, Morgan Stanley, their objective is to get as many customers for the product they produce as possible. And the product they produce is debt. So the real road to serfdom is the road to debt peonage and it was the same road to serfdom that Rome followed and every country that’s fallen into serfdom that’s followed.”

The Bailout/Wall Street Giveaway – A Blueprint

We are fortunate to have had Naomi Klein document exactly how conservative business interests and governments team up to take advantage of shocks (economic, political and natural disasters) to dispossess their populations of their property rights. Paulson is following this script to the letter. The bailout/Wall Street giveaway was presented as necessary to avert a disaster. Congress is “shocked” (and bribed) into passing the bill. What is happening now is a repeat of what happened in Russia in the 1990′s, a giveaway to connected individuals that created a class of oligarchs. Russia never recovered from this advice, which was spearheaded by the World Bank and IMF with the University of Chicago economics department as their philisophical cover. This, and other related policies, devastated Russia, turning into a third world country.

Co-conspirators

Paulson did not do this by himself. His conspirators include.

1. the conventional media which represents financial interests beat a constant drum for the bailout.
2. Fed Chairman Bernake and Paulson both provided testimony that was cross reinforcing.
3. Congress voted for the TARP. However, while many in Congress were bribed with riders on the bill, more recently even those in Congress are surprised how TARP has been implemented and may be willing to revisit the issue…..if there is public pressure to do so.

Unfortunately, it is beginning to appear that Obama has himself drunk the cool aid as he is not attempting to slow or change the terms of the second $350 billion of TARP.

Who Benefits?

Freinds of Paulson, which include banks benefit, the rest of the society loses. Its clear that debtors are the farthest thing from Paulson’s and Bernake’s mind.

Prosecution – a Action Plan

Henry Paulson is about to leave office with the rest of the Bush Administration. It will be much easier to prosecute Paulson once he is out of office. In order to do this, the Department of Justice will need to take up the case, and Obama will have to disallow Paulson from claiming executive privilege. Executive privilege is a faux legal defense, but is being used by Bush Administration officials to prevent them from having to answer subpoenas to Congress. Currently, the most notorious user of executive privilege currently is Karl Rove who has been called multiple times to testify and has yet to show up.

The Department of Justice will respond to political pressure and Henry Paulson has broken the law. Both his changing of tax law on bank loss depreciation for acquiring banks and his allowing banks to use the TARP funds for anything they wish, are real legal problems for him. However, the political pressure must be brought to bear on Obama to pressure the DOJ. Secondly, Obama must be publicly pressured into both pushing this agenda with the DOJ and disallowing Paulson’s use of the ludicrous executive privilege faux defense. This is where you the reader come in. By forwarding this post to friends and by either answering the poll below, and or commenting you can help built a show of support that we can then forward to other progressive sources and hopefully build a wave of support for action. Any ideas of how to forward this agenda would be welcome. Most realistic economists like Dean Baker, Michael Hudson, and Joseph Stiglitz are opposed to this bailout/giveaway. This is likely the most important financial event in our lifetimes. Lets not let a few people who want to create a new oligarchy win.

References

Paulson’s illegal change of tax law.

http://www.motherjones.com/news/feature/2009/01/trillion-and-counting.html

Here Michael Hudson discusses the new American oligarchy

http://www.michael-hudson.com/interviews/080730FictitiousEconomy2.html

Naomi Klein – The Shock Doctrine

http://www.naomiklein.org/shock-doctrine

Joseph Stiglitz on the bailout

http://www.thenation.com/doc/20081013/stiglitz

Here it shows The Treasury picking winners. This video shows National City bank not selected by The Treasury which was then acquired by PNC.

http://americannewsproject.com/videos/181

Discusses lack of accounting

http://news.yahoo.com/s/ap/20081222/ap_on_go_ca_st_pe/meltdown_secrets

How the TARP program was forced on congress using fear techniques – similar to the Patriot Act

http://americannewsproject.com/node/129

How Congress ignored the need for oversight. Paulson promised it, 100 pages of oversight provisions were written, yet nothing for tracking the money. According to David Vladeck of Georgetown, there is nothing in the bailout bill requiring the banks to report where the money was spent.

http://americannewsproject.com/node/129

TARP explained

http://en.wikipedia.org/wiki/Troubled_Assets_Relief_Program

Dean Baker at the CEPR on the bailout

http://americannewsproject.com/videos/136

The media’s role in pushing the bailout

http://www.alternet.org/columnists/story/102773/news_media_propaganda_helped_push_through_failed_bailout/

Documenting the bailout as is progresses

http://www.bailoutsleuth.com/

Big Steel looking for $1 Trillion

http://www.dollarsandsense.org/blog/2009/01/steel-industry-looking-for-1-trillion.html

Lack of review of TARP

http://www.michael-hudson.com/articles/debt/080922CureWorse.html

Joseph Stiglitz comparing TARP to a third world nation bill

http://fora.tv/2008/10/20/Naomi_Klein_and_Joseph_Stiglitz_on_Economic_Power

How Paulson has managed the crisis – that Paulson is both ill equipped to deal with the crisis on top of being criminal in his motivations to enrich his investment banking friends using the crisis as a cover.

http://www.engdahl.oilgeopolitics.net/Financial_Tsunami/Citigroup_Abyss/citigroup_abyss.html

The illegality of Paulson’s tax law change

http://www.washingtonpost.com/wp-dyn/content/article/2008/11/09/AR2008110902155_pf.html

Cost of the bailout vs. WW2

http://abcnews.go.com/business/economy/Story?id=6332892&page=1

Economy worsening

http://www.marketwatch.com/news/story/story.aspx?guid={BB497A79-3192-4F19-A230-3496F202567A}&siteid=YAHOOB)

Citibank and TARP

http://news.yahoo.com/s/nm/20090114/bs_nm/us_bankofamerica_3