Protecting the public interest in any economic "bailout"
Dear Friend,
The U.S. government has been turned into an engine that accelerates the wealth upwards into the hands of a few. The Wall Street bailout, the Iraq War, military spending, tax cuts to the rich, and a for-profit health care system are all about the acceleration of wealth upwards. And now, the American people are about to pay the price of the collapse of the $513 trillion Ponzi scheme of derivatives. Yes, that's half a quadrillion dollars. Our first trillion dollar compression bandage will hardly stem the hemorrhaging of an unsustainable Ponzi scheme built on debt "de-leverages."
Does anyone seriously think that our public and private debts of some $45 trillion will be paid? That the administration's growth of the federal debt from $5.6 trillion to $9.8 trillion while borrowing another trillion dollars from Social Security has nothing to do with this? Does anyone not see that when we spend nearly $16,000 for every family of four in our society for the military each year that we are heading over the cliff?
This is a debt crisis, not a credit crisis. Just as FDR had to save capitalism after Wall Street excesses, we have to re-invigorate our economy with real - not imaginary - growth. It does not address the never-ending war on the middle class.
The same corporate interests that profited from the closing of U.S. factories, the movement of millions of jobs out of America, the off-shoring of profits, the out-sourcing of workers, the crushing of pension funds, the knocking down of wages, the cancellation of health care benefits, the sub-prime lending are now rushing to Washington to get money to protect themselves.
The double standard is stunning: their profits are their profits, but their losses are our losses.
This bailout will not bring real jobs back to America. It will not bring back jobs that make things. It does not rebuild our schools, streets, neighborhoods, parks or bridges. The major product of this financial economy is now debt. Industrial capitalism has been destroyed.
In the next few days I will push for a plan that includes equity for every American in any taxpayer investment in this so-called bail-out plan. Since the bailout will cost each and every American about $2,300, I have proposed the creation of a United States Mutual Trust Fund, which will take control of $700 billion in stock assets, convert those assets to shares, and distribute $2,300 worth of shares to new individual savings accounts in the name of each and every American.
I will also insist that all of the following issues be considered in whatever Congress passes:
- Reinstatement of the provisions of Glass-Steagall, which forbade speculation
- Re-regulation of the finance, insurance, and real estate industries
- Accountability on the part of those who took the companies down:
a) resignations of management
b) givebacks of executive compensation packages
c) limitations on executive compensation
d) admission by CEO's of what went wrong and how, prior to any government bailout - Demands for transparencey
a) with respect to analyzing the transactions which took the companies down
b) with respect to Treasury's dealings with the companies pre and post-bailout - An equity position for the taxpayers
a) some form of ownership of assets - Some credible formula for evaluating the price of the assets that the government is buying.
- A sunset clause on the legislation
- Full public disclosure by members of Congress of assets held, with possible conflicts put in blind trust.
- A ban on political campaign contributions from officers of corporations receiving bailouts
- A requirement that 2008 cycle candidates return political contributions to officers and representatives of corporations receiving bailouts
And, most importantly, some mechanism for direct assistance to homeowners saddled with unreasonable or unmanageable mortgages, as well as protection for renters who have lived up to their obligation but fall victim to financial tragedy when the property they live in undergoes foreclosure.
These are just some thoughts on the run. You will hear more from me tomorrow.
Dennis J Kucinich
www.Kucinich.us
216-252-9000 877-933-6647
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Comments: 18
I was so lucky in 2004 when I locked in a 4.75% on my house until 2011.
The initial cost of the Mortgage and Financial Institutions Trust (MFI), put at US$700 billion, could easily escalate to trillions of dollars. At the same time, the Congressional Budget Office had previously projected a record fiscal deficit of US$500 billion for 2009. The MFI will further blow up the deficit to an unprecedented level, exceeding US$1.4 trillion. US debt, jumping with the takeover of Fannie Mae and Freddie Mac to 86% of GDP, has moved to an unsustainable level.
Except for investment banks that were involved in speculative hedge funds and credit derivatives, the commercial banking system remains largely salvageable. Most of the Fed's actions were made at behest of Wall Street and were not warranted by the ample liquidity of the banking system and fast growth of credit since 2001; bank credit continued to expand at very high rate of 12% per year during 2001-2008, implying absence of any credit freeze for the economy at large. Most notorious was the cutting of the federal funds rate from 5.5% to 2%, which was highly applauded by bankers, politicians, and academicians, yet failed to stimulate the economy.
Massive injection of liquidities since August 2007 by the Fed to the banking system have allowed banks to pour money into speculative oil, food, and other commodities markets; they aggravated food inflation, disrupted transports sector, slowed down economic growth, and pushed unemployment to 6.1%.
The market can take care of bad assets - Merrill, Lehman, Morgan et al have shown that in the last week . We can lend money at interest if needed, not take on bad debts. The Mortgage and Financial Institutions Trust (MFI) Paulson' proposal only devalues the dollar and doesn't do anything for real estate values etc. Ron Paul warned of this.
When the U.S. government owns all mortgages, the real estate market will be completely subject to political, rather than financial, concerns. Will foreclosures be outlawed? Will loan term easements and principal reductions become standard campaign issues?
While it is dizzying to predict how this plan will be implemented, it is fairly simple to foresee the macroeconomic consequences. The U.S. dollar will be shattered beyond repair.
Clark, on the other hand, reading your statements made my eyeballs glaze over...
now for a true solution:
what everyone is saying is that all these bad loans are bringing down the financial industry so we need to bail them out and maybe we do but lets do it in a way that get's the loans paid off but also puts money into the hand of the homeowners at the same time and thus puts money back into the economy instead of into the pockets of the people that created this current mess. so instead of giving 700 billion to wall street lets pay off the loans of anyone who purchased a home from jan 2005 to jan 2008 and is behind on their mortgage payment or is still making their payments but their salary has dropped since they purchased their home or their loan payment is more than 30% of their gross income . now anyone that purchased a home without providing proof of income CANNOT participate in this deal. Further the government will pay 85% of the remaining balance on the loans, the mortgage holder will just have to accept this amount since their option is 85% or nothing. This will put cash back into the financial institutions but more importantly it will free up cash for the middle class which will drive the economy back onto its feet. finally regulations need to be established concerning debt to income levels that CANNOT be broken when making loans. we need to make rules that cannot be ignored when it comes to how much debt an individual is allowed to have because yes people have the right to make stupid decisions but not when those decisions can end up effecting everyone else and all the stupid decisions that were made in wall street over the past three years hoping to and actually making millions of dollars on risky loans are definitely effecting all of us.
now if a persons home is paid off and they go to sell it, the following schedule applies to how much of the sale price they must pay back to the federal government.
if the house is sold anytime within 2 years after the mortgage is paid off, the federal government will get 90% of the proceeds
if the house is sold anytime within 4 years after the mortgage is paid off, the federal government will get 80% of the proceeds
if the house is sold anytime within 6 years after the mortgage is paid off, the federal government will get 70% of the proceeds
if the house is sold anytime within 8 years after the mortgage is paid off, the federal government will get 60% of the proceeds
if the house is sold anytime within 10 years after the mortgage is paid off, the federal government will get 50% of the proceeds
if the house is sold anytime 10 years after the mortgage is paid off, the federal government will get 30% of the proceeds
so please do not bail out wall street by simply giving them money but instead give them money by paying off (not purchasing) the bad loans. see this as a stimulus package which takes care of two problems at once.
Yes, he does make sense, thanks for sharing this.