Wednesday, October 1, 2008

The Bailout (again): Battling Narratives and Alternative Plans

John Nichols reports that some of the progressive House Democrats who voted against the bailout plan, including Peter DeFazio of Oregon and Marcy Kaptur of Ohio, are proposing an alternative plan, one modeled on

a proposal made last week by former FDIC chair William Isaac, who recalled that in the 1980s Congress enacted a "net worth certificate" program - which allowed the federal agency to shore up the capital of weak banks to give them more time to resolve their problems - and the FDIC resolved a $100 billion insolvency in savings banks for a total cost of less than $2 billion.

"It was a big success and could work in the current climate," argued Isaac.

The chair of the FDIC during Ronald Reagan's first term explained that that:

If we were to (1) implement a program to ease the fears of depositors and other general creditors of banks; (2) keep tight restrictions on short sellers of financial stocks; (3) suspend fair-value accounting (which has contributed mightily to our problems by marking assets to unrealistic fire-sale prices); and (4) authorize a net worth certificate program, we could settle the financial markets without significant expense to taxpayers.

Say Congress spends $700 billion of taxpayer money on the loan purchase proposal. What do we do next? If, however, we implement the program suggested above, we will have $700 billion of dry powder we can put to work in targeted tax incentives if needed to get the economy moving again.

The banks do not need taxpayers to carry their loans. They need proper accounting and regulatory policies that will give them time to work through their problems.

DeFazio, Kaptur and their allies essentially agree.

So, too, does the powerful Service Employees International Union, which has endorsed DeFazio's proposal.

"We finally have a plan that will restore confidence in the financial markets without writing a blank check to the same Wall Street banks and CEOs who got us into this mess," said SEIU President Andy Stern. "This is an important, short-term solution that protects taxpayers and their savings accounts. To revive the economy over the long-term, we must address rising unemployment, stagnant wages, the healthcare crisis, and a tax system that is tilted in favor of the wealthy."

Christopher Hayes has more on the proposal here.

NPR this morning aired a segment discussing some of the concerns of the 200 economists who signed an open letter to Congress opposing the bailout plan.

Paul Krugman, in his column in today's New York Times, looks at two of the various narratives of the bailout people are subscribing to. (Link thanks to Eileen Gunn.)

There seem to be two prevailing narratives about the bailout plan(s). Both have elements of truth, but are fundamentally wrong.

And at The Black Agenda, Glen Ford has a scathing political analysis of the bailout crisis in his piece Bailout Lesson: Capital Crisis Will Wreck Both Parties.

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