Apparently, everyone in Washington is falling over themselves to pacify House conservatives, who instead of taking responsibility for the deregulation that led to this financial crisis, are throwing another one of their predictable temper tantrums.
No one in Congress wants to pass a politically dicey bailout package without significant bipartisan support.
But this gives congressional conservatives way more cards than they deserve, and risks reversing the positive momentum being built for a deal that could actually protect taxpayers and hold irresponsible bankers accountable.
The outlines of yesterday's scuttled deal fall short of what needs to be done to fully get our derailed deregulated economy back on track, as Robert Borosage explains. But they are an improvement from the original Bush-Paulson plan, thanks to the momentum generated by the intense public backlash.
What remains to be done to strengthen to deal have been responsibly offered by the House Progressive Caucus in recent letters (PDF files here and here) to Speaker Nancy Pelosi. They include:
1. Putting the burden on Wall Street, not Main Street. "[T]he same Wall Street speculators and investors who are principally responsible for having caused this avoidable financial crisis and profited from it must now be required to pay for it, not U.S. taxpayers. Should Congress move forward, this requirement must be an essential part of any bailout bill (akin to a Progressive PAYGO requirement). That is why we support the enactment of a financial transaction tax equal to one quarter of one percent (0.25 of 1%) on all U.S. stock trades and more exotic transactions such as credit default swaps, options, and futures. This would raise approximately $150 billion/year. In addition, we should amend the tax code to prohibit the tax deductibility of executive compensation in any company where the highest paid corporate officer exceeds the compensation of any employee by a ratio of greater than 25: 1. This would raise tens of billions of dollars in additional revenue to help meet the costs of the extraordinary Wall Street bailout being proposed by U.S. Treasury Secretary Henry Paulson."
2. Bankruptcy reform. "...top priority must be given responsibly to helping current homeowners renegotiate their mortgages on manageable terms. It is of paramount importance that this massive restructuring of the American home mortgage market be accomplished in such a way that the greatest number of American families possible be able to stay in their current homes or make good on their pending applications to obtain their first homes."
3. Modern regulation. "[I]t is also very important that the financial bailout legislation under development safeguard consumer rights, provide tough, independent oversight, and establish a transparent, effective, 21 st century regulatory regime for the financial industry in America that will prevent any future repetition of the current Wall Street calamity."
4. Economic stimulus for Main Street: "[w]e ... pledge our strong, active support for your scheduling of fast action on a second economic stimulus package to help get our economy back on track, create jobs, and speed assistance to tens of millions ofAmericans who are struggling to make financial ends meet ... If many of the titans of America's financial industry are to be bailed out by American taxpayers, it is imperative that hardworking and impoverished Americans also receive federal help amidst the greatest financial and credit crisis since the Great Depression, and the resulting economic hardship for so many of our constituents struggling desperately to meet their basic human needs."
Similarly, our own Robert Borosage highlighted what was missing in the proposed deal earlier this morning. While noting that there a promising improvements -- in regards to public equity in bailed out firms and oversight of Bush administration actions -- critical provisions remain missing that would get our economy working for working people again:
What is missing is the logical authority to allow bankruptcy courts to work out mortgages. It is bizarre that Paulson, Wall Street and Republicans have decided to oppose what would be the most logical way to work out bad mortgages - a hearing officer on a case by case basis deciding the best way to proceed.
...
There are no requirements for re-regulating the banking system, no listing of no-brainer reforms, like extending limits on capital and leverage to the shadow banking system. A bailout that rescues Wall Street without re-regulation is a fool's errand. If the bankers think their losses are covered and no limits are put on their gambles, they will soon be taking even greater risks. Paulson wants bailout now and regulation later. But when Wall Street is back on its feet, its lobby will fight relentlessly against regulation.
...
It is simply perverse that the president argues we need $700 billion tomorrow to save the banks but that it is "pre-mature" to have another stimulus program for the real economy. Layoffs are accelerating. States and localities are about to cut back on police, health care, schools, construction projects. We should be investing major sums -- $250 billion or more - now in the real economy, to put people back to work. If the recession worsens, the balance sheet of banks will worsen, as more people default on credit card, auto and consumer loans.
You may disagree with some of those specifics, but there's no dispute of their relevance to what is ailing our economy: an overly deregulated market, a neglected economic foundation and a squeezed middle-class.
Contrast that with what the "Economic Rescue Principles" the House conservatives in the Republican Study Committee released:
Instead of injecting taxpayer capital into the market to produce liquidity, private capital
can be drawn into the market by removing regulatory and tax barriers that are currently blocking private capital formation......Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another. In addition, we should allow for a temporary suspension of dividend payments by financial institutions and other regulatory measures to address the problems surrounding private capital liquidity.
Apparently, House conservatives live in a Bizarro world where tax cuts for the wealthy weren't the primary policy of the past eight years and market deregulation wasn't the trend for the last 28 years.
These House conservatives are not serious people with whom to negotiate. They offer nothing to improve upon what has been accomplished. They should not be allowed to unravel what progress has made.
If there are any voices that remain to be incorporated in this negotiation, better reflecting the desires and concerns of the public, it is those of the House Progressive Caucus.
