Bailout 101

Update: lawmakers have arrived at and agreement today (Thursday) but details are not yet available.

We wrote last week on how the economic crisis is hitting workers, and has been for quite a while. Wondering how the financial landscape got where we are today? This is, hands down, the best explanation out there. You can also watch Rachel Maddow's kids-with-candy analogy, which although simplistic, does summarize things pretty well.

Now here's the scoop on the proposed bailout: the original text from Treasury Secretary Paulson proposed $700 billion from the government to buy worthless mortgage loans off the books of the investment firms and banking houses that want to dump their bad debt. Moreover, the government was promised nothing in return, and oversight of the process was explicitly prohibited.

The plan now has been expanded to cover not only bad mortgage loans, but all bad loans, and not only for U.S. banks, but for any bank.

The Treasury would hire consultants (read: bankers & financiers) to decide which loans to purchase for how much, how to resell them, and at what price. This would give the very people who created the mess more money to help dig us out of it.

If you think this whole thing is starting to look like a foreign banking scam, you may have a point.

After the jump: more on the bailout, and ways to take action to stop the rip-off of America

One writer, whose work I have not been able to find again to reference, pointed out that if the crisis were really as bad as it is being presented, we would be hearing stories of small business owners denied loans, people refused car loans, and credit card companies tightening standards for issuing cards, but not only is this not the case, you can still find companies offering predatory home loans online.

Like the push to pass the Patriot Act, this proposed bailout is using economic shock and awe to force a bad bill down taxpayers' throats. There are some important questions that need to be asked first, and there are plenty of other ideas for economic salvage plans put out by reputable economists.

The rush to pass the plan is unnecessary, and likely intended to force quick judgement on an unwise plan rather than allowing us to look at all our options. Turns out this has been in the works for months, so this crisis comes as no surprise to the Bush administration. In fact, some have seen the financial collapse and bailout as the culmination of the conservative "starve the beast" strategy to prevent progressive government programs.

The good news is, people don't seem inclined to let it happen, and our Senators are finally getting the guts to stand up and say, "No more."

Despite protests from Paulson, Senator Dodd has insisted that any bailout will include limits on executive compensation. Any taxpayer-funded bailout needs to include a lot more than that to ensure that those whose greed precipitated the collapse are forced to help pay for it, that threatened homeowners get a chance to renegotiate overpriced mortgages, and that the country has a chance to recoup its losses. Any Wall Street firm that doesn't like the terms is free not to take the bailout and sink or swim on its own merits.

One thing no one has been able to successfully explain to me yet: if the current crisis is really based on the fact that people are losing their homes at a ridiculous rate (8,000/day at last estimate), why does it make more sense to give the corporations money and give the government the worthless loans, rather than giving the money to the people in foreclosure so they can pay off their loans, thus giving the money to the corporations and shoring up the economy while also eliminating the threat of foreclosure? I know it's simplistic, but it seems to me that handing a big pile of money over to Wall Street, no questions asked, is pretty simplistic too.

And of course, handing money over to Wall Street means less money to fund things the country really needs, like health care, infrastructure, better education, and energy independence, as well as the New Apollo Program to rebuild the country through green technology.

Pissed off yet? You should be. Now here's what you can do.

Ways to take action:
Thursday there will be emergency protests around the country. Find the nearest one, and bring a sign and a friend.

Thanks to US Action and TrueMajority, you can easily set up or join a nearby event to tell Congress that we need an effective solution to the crisis caused by unregulated greed. Set up an event. Find an existing event in your area.

Call your U.S. Rep. and Senators: 1-800-473-6711, toll-free, thanks to American Friends Service Committee
Tell them: I urge you to reject a blank check bailout for Wall Street. I understand there is a real and costly crisis brought on by unregulated greed. Congress must fix the mess through a public ownership stake to reduce the loss to taxpayers, effective oversight, help for those hurt by the crisis (people losing homes, jobs, and income), and investments in economic recovery.

Write a letter to the editor TODAY! All you need is right there, thanks to the organization RESULTS.

Got a "distressed asset" you'd like the government to buy at 100 times its actual value? Add it to the pile.

Some of our other posts on the economy:
Economic Free-fall Hits Workers Harder than Wall Street
Poverty Gets Worse, But Not Officially
The Struggle for Work/Life Balance
It's Still the Economy, Stupid!