Progressive Conditions for a Bailout by Dean baker

[Imperialism Inc.]

Progressive Conditions for a Bailout

The events of the last week showed the urgency of dealing with the financial crisis. There is a real risk that the banking system will freeze up, preventing ordinary business transactions, like meeting payrolls. This would quickly lead to an economic disaster with mass layoffs and plunging output.

The Fed and Treasury are right to take steps to avert this disaster. While there is an urgency to put a bailout program in place, there are several important issues that Congress should address in the context of bailout.

While there is not time to prepare all the details of the financial restructuring that will follow after the bailout, there can be an agreement on the outlines that this restructuring should take. This list of suggestions is presented in that context:

Principles to Guide the Bailout

1) Financial institutions should be forced to endure the bulk of the losses with taxpayer funds only used where absolutely necessary to sustain the orderly operation of the financial system.

2) The bailout must be designed to minimize the opportunity for gaming.

3) The bailout should be designed to minimize moral hazard.

4) In the case of delinquent mortgages that come into the government's possession, there should be an effort to work out an arrangement that allows the homeowner to remain in her house as owner. If this proves impossible, then former homeowners should be allowed to remain in their homes as renters paying the market rent. This should be done even if it leads to losses to the government.

5) There should be serious efforts to severely restrict executive compensation at any companies that directly benefit from the bailout.

(much more)

[billyoc]

1. Dean Baker should be required reading.

[Tandalayo_Scheisskopf]

2. I can go several further:

There are these: We can start by taxing the two out of three corporations in the US that pay no taxes every year. Then, we can roll back the estate tax. We can also roll back tax breaks for the wealthiest. Add a per transaction tax on all Wall Street transactions: stocks, bonds and commodities. We can make sure that any companies left standing thanks to direct government fiduciary intervention pay a stiff premium. We can raise the federal gas tax by one cent. We can enact a one cent VAT. We can re-enact taxes on luxury items like yachts and private jets, and stop the tax breaks on certain types of vehicles. We can enact certain taxes on the oil companies. We can close loopholes on executive compensation.

And:

We can end the tax loophole that allows any corporations a big break to offshore jobs. Any corporation receiving government bailouts or any government assistance WHATSOEVER must be forced to keep 100% of its workforce for domestic operation in the US, comprised of US citizens. They may not be allowed to use the H1-B dodge in any way shape or form. If there is a job candidate that is not 100% qualified but meets a necessary percentage of the requirements, the company must pay for any and all training to get that candidate up to speed further.

All tax dodges that offshore profits to shell entities must be ended. All expatriation of profits must end.

Every effort, the full might and strength of the American Justice and Regulatory Systems must be brought to bear to pierce the veils of The Caymans, Bermuda and The Bahamas, Switzerland and any other countries used to dodge taxes and conceal profits. I do not say this lightly: if these island entities that have long enabled the rape and pillaging of our economic security are not forthcoming with their information, then military action to seize their records and assets, under the umbrella of NATO, should be considered seriously, for failure to cooperate would be prima facie evidence that they wish to continue to erode our economic security and as such, are hostile to the interests of The United States.

All markets must be public, regulated and transparent. Dark Pools must end.

Leveraged speculation in commodities must face new rules. A minimum of 50% of the face value of a contract must be borne by investors. All investors in commodities must be held to strict reporting rules. All investors that take delivery of any physical manifestation of a commodity must face serious reporting rules at every stage of ownership, with deeply severe penalties, tantamount to those for wire fraud, for those who break those rules and report falsely.

There is a start. I am sure there are other suggestions.

[gravity]

3. Most of the conditions are being met

other than the plan to keep delinquent homeowners in their house. This a separate issue which has its own unique challenges and moral hazards involved with it.

When you have the champions have free market propose a $700 billion bail out plan, they are going to take the cautionary steps to do it right. Both republicans and democrats interests are on the same page on making sure this bill does the job without causing a moral hazard.

[Imperialism Inc.]

5. Baker seems to disagree

From the comments section under the article:

Folks,
the bailout proposal that Paulson has put forward is a blank check. It would outrageous if Congress approved it in its current form. This is the domestic equivalent of the Iraq war authorization.
The threat of financial collapse is analogous to the weapons of mass destruction. The markets will wait. Congress can give a proposal with real conditions and then it will be Bush's call if he wants to be responsible for collapsing the U.S. economy.

That is my impression also, a blank check. As Baker says the reverse auction mechanism is wide open to gaming.

[mzmolly]

4. K and R. I hope he'll be in contact with Obama advisors

with his suggestions. Not to mention Pelosi and Reid. We need some leadership on this.