September 23, 2008 – The Economic Policy Institute has weighed in on the Paulson bailout plan:

With $700 billion of taxpayer money at stake, Congress, the administration, and Secretary Paulson must represent all of us, not just the financial markets. This means paying attention to distressed mortgage holders and to job seekers facing an unemployment rate of 6.1% (more than 10% for African Americans). To offset whatever costs emerge from this bailout, we will need to raise revenues—we suggest levying a tax on financial transactions and raising the tax on income from capital gains and dividends to the same rate as wages. Otherwise, the nation’s needs for expanded health care and investments in infrastructure, renewable energy, and education will be curtailed. We also must make sure that those who are bailed out do not enrich themselves further with excessive salaries and benefits.

Well, so far it looks highly unlikely that the Paulson plan is going to represent all of us, or anyone other than Wall Street. That so much pressure is being leveled on Congress to act quickly on the bailout plan is frightening. And one thing that likely to be true in this instance, as it usually is in instances of haste, is that the plan will have more than a fair share of unintended consequences. Just how serious they are, and to whom they will favor and disfavor is yet to be seen.

But it is reasonably clear at this point, that this is going to be a bad deal for the American people. If Paulson and Bernanke really were leaders, instead of reactionaries, in our opinion, rather than raising the bar of financial fear and devastation to create a sense of urgency for Congress to act without due consideration and deliberation, they would be out in the spotlight trying to calm the markets – to buy a bit more time for proper study of the plan.

On the other hand, and permit us to be cynical, the notion of Paulson and Bernanke calming anyone at this point is laughable. These guys have been behind the curve on this slow moving train wreck for a year now, and have, at least in our mind, little credibility. As Jim Rogers said recently, “Paulson said that the fundamentals of the economy were strong 12 months ago, he said it 9 months ago, 6 months ago, 3 months ago and he will say it again 3 months from now.” Bernanke has not been much better – having only recently acknowledged that the deterioration of the U.S. dollar is probably not a good thing.

And if the Paulson/Bernanke duo don’t have a whole lot of credibility, then why the heck wouldn’t we be taking an extra look at the plan that they are proposing which is going to tack on $700 more billion to the taxpayer liability? These guys have been right about very little heretofore, so why endorse their plan blindly now?

Or maybe these two, as incompetent as they have been for so long – denying the deteriorating trend in the economy with Paulson jawboning on one end, and Bernanke firing off another rate cut on the other – are at lease competent enough to know that they have screwed the pooch. Much like Dennis the Menace, who wouldn’t be counted on by many, let alone himself, to create a masterpiece on canvas, but would surely know when he has created a mess.

So maybe they are right about this one. Maybe there is little time to deliberate before this whole thing unfolds. But all the more reason, knowing what we do about their track records, to add a bit more oversight and input into the plan that they are proposing. We wouldn’t ask Dennis the Menace to solve the world’s problems. To be fair, we have stretched this analogy too far, and we all know that Paulson and Bernanke are smart guys.  

But these smart guys can and have gotten caught up in a more pervasive zeitgeist of debt and leverage and failed to provide the Congress, Wall Street and the public with the kind of financial expertise and oversight needed to have seen the signs when they were all becoming so apparent – beginning last May – at least as we wrote. By September, it was pretty clear that the fundamentals of the economy weren’t strong, and it was also pretty clear that a thread in this “Empire of Debt” was beginning to unravel. So here we are today. We didn’t get here overnight .

Too many people in too powerful of positions waited too long. So let’s wait just a few more days then, to be sure that we get this bailout plan as right as we can – and certainly apply some oversight and good old fashioned “show me” to Paulson and Bernanke to prove their case, and that it is indeed the best one for our country. For our part, we would like to see some of the suggestions put forth by the Economic Policy Institute incorporated

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