Shock Doctrine: Will We Get Fleeced In This Crisis?

Call it extortion. Every American is told to ante up $2,000—an estimated $700 billion in all—to bail out the banks from their bad bets, or they’ll bring down the entire economy.

In a speculative frenzy that allowed the Masters of the Universe to pocket millions personally, the banks filled their coffers with toxic paper that no one wants to buy. Now they sensibly don’t want to lend money to each other, since no one knows if the other is solvent. So they go on strike, and threaten to trigger a global depression, if they don’t get rescued.

The bailout will happen simply to avoid that depression. But depressions have some salutary effects – the scoundrels go belly up, the weakest get purged, and in the wake of the disaster, people demand strict regulation of the money lenders to keep their greed and predatory behavior in check, and government spends money on the real economy to put people back to work.

So if we’re going to ask Americans to pay to avoid the depression, we better demand the accounting that would otherwise take place.

No bailout should go forward—at whatever cost—without the following minimal conditions:

Taxpayer money; taxpayer accountability. The Treasury wants unlimited authority to spend $700 billion in a revolving fund with no rules beyond its own discretion. We can't trust the most spectacularly corrupt administration in memory to decide how they'll cut the deals with the banks. We’d get fleeced. Instead, the law must require an independent entity, with consumers and workers having a majority of the seats on a board with authority to create rules that will prohibit gaming of the bailout. And the Congress—itself sadly compromised by Wall Street money—should be empowered to name independent monitors and to approve all board members.

Taxpayers share in the upside. Under what's being proposed, the Treasury would buy the bad paper of firms without taking any equity in the firm. That's an invitation to larceny. If a firm decides to auction off its toxic paper to the U.S agency, taxpayers should get equity in that firm, in proportion to the assets we buy. That will deter profitable firms from using the agency as a dump for their toxic paper. And it will insure that if the bailout works and the firms become profitable, taxpayers, not simply bankers, benefit from the upside.

Shut down the casino. No bailout of the predators can go forward without new regulation for the entire financial system—capital requirements, leverage limits, bans on exotic instruments, transparency, limits on compensation schemes. The shadow banking system—hedge funds, private equity firms—must be brought under the glare of regulators. Some details should be written into the law; the Treasury can be mandated to issue regulations on the rest by a date certain. Any promise to do the bailout now and the regulation later is simply a lie. If the banks are too big to fail, they are too big to play on the Street alone.

Curb excessive CEO pay. Wall Street fat cats shouldn't be pocketing millions taxpayers are forced to bail them out. Any firm that applies for relief must agree to limit the compensation of any executive—pay, bonuses and perks—to no more than the highest pay offered a senior federal official. Future compensation should be linked to profitability.

Invest in the real economy. Ending the bankers strike is not sufficient to avoid a serious recession, as consumers tighten their belts. A major public investment agenda–$250 billion or more–for launching new energy and conservation projects, rebuilding schools and infrastructure, extending unemployment and food stamps, and helping states avoid crippling cuts in police and health services, is vital to getting the real economy moving and putting people back to work. If we don’t do this, the coming recession will raise the cost of the Wall Street bailout dramatically, as credit card, auto and home loan defaults rise.

Aid the victims, not just the predators. No bailout of the banks can take place without a freeze on foreclosures and a renegotiation of bad mortgages. Bankers as well as homeowners both made foolish bets that home prices would keep rising. Many homeowners were misled by predatory lenders to taking mortgages that they didn’t understand and couldn’t afford. It would be simply obscene to help the predators and not those that they preyed on.

Curb the political corruption. Paid lobbyists of Wall Street firms should be banned from the Beltway. Any meeting with representatives of Wall Street–and many will be needed to understand what is happening–should be posted immediately by legislators in a central place on the Internet. Senators and representatives on the relevant oversight committees should forswear any contributions from Wall Street employees. All those employed over the past five years by troubled firms seeking relief should be prohibited from profiting from the bailout. Without this ban, legions of executives from Bear Sterns or Lehman Brothers will create consulting firms to profit from cleaning up the mess that they made.

These demands will be met with howls of outrage, a renting of pinstripes. It will require a Congress, lathered with Wall Street contributions, to stare down the doomsayers and demand a deal that makes sense. This won’t be easy, with Republicans apparently lining up like lemmings to turn the keys of the Treasury over to the Bush administration. Already the terminally inane Republican Senate Leader Mitch McConnell has thrown his support behind anything the administration says, arguing that “the proposal is, and should be kept, simple and clear.” “Simple and clear” is a euphemism for trusting that the banks and the administration will serve the public interest. Good luck with that.

These banksters have brought the global economy to the brink of ruin. Counting the money already spent, more than a trillion dollars will be spent bailing them out of the mess that they have made. Before agreeing to that, Congress has to try to limit the fleecing of the taxpayers, curb the speculative excesses, and insure that the Masters of the Universe are brought down to earth. If they fail in that, they’ll just be throwing good money after bad.

Make your voice heard. Add your comments below. Write Senate Majority Leader Harry Reid, House Speaker Nancy Pelosi and demand that they stand up. Write Senate Republican Leader Mike McConnell and House Minority Leader John Boehner and tell them that saluting the Bush administration is not sufficient. Tell the committee chairs Sen. Chris Dodd and Rep. Barney Frank that the Treasury proposal is unacceptable. Finance is too important to be left to the bankers. And the bailout is too costly to be left to the Bush administration.

It's time for citizens to demand common sense.