Bucking the bailout

Mad as hell, the American people reject writing Wall Street a blank check

Illustration by Robert Armstrong

Last week in this space, I suggested the American people might not be as dumb as politicians presume they are. This week, damned if they didn’t go and prove me right by derailing the $700 billion taxpayer-funded bailout of Wall Street proposed by the Bush administration. Via telephone, the Internet and street protest, concerned citizens from across the political spectrum have put Washington’s plutocracy on notice: Enough’s enough.

For the first time in what seems like decades, Washington appears to be listening. Although House Republicans led the fight against the bailout proposal, which was defeated 228-205, they were joined by a fair portion of Democrats, who no doubt have noted public opinion is running 2-to-1 against the bailout. Wall Street responded by nose-diving 777 points, the largest one-day point drop in stock-market history.

The greed and hypocrisy that has corrupted our political process can no longer hide in plain sight. Treasury Secretary Henry M. Paulson Jr., the architect of the bailout proposal, has pointed out few Americans understand the complexities of the present financial crisis. But really, it’s rather simple. For the past decade, Wall Street has been playing high-stakes poker with debt-backed securities, unregulated financial devices that permit mortgages and other forms of consumer debt to be packaged and sold as stocks on the open market. When the housing market crashed and debtors began defaulting on home loans, those stocks became worthless, virtually overnight. Wall Street lost its gamble, but rather than pay up, it’s now seeking to shove the bill onto taxpayers.

Needless to say, the taxpayers smell a rat, and Paulson is the leading offender. The Treasury Secretary is in fact the former CEO of Goldman Sachs, the giant Wall Street investment bank that stood to be one of the bailout’s major beneficiaries. Indeed, the firm has already raked in $20 billion thanks to the Federal Reserve’s rescue of American Insurance Group last month. The only Wall Street CEO in the room when that deal was cut? Lloyd Blankfein of Goldman Sachs, according to The New York Times.

An obvious conflict of interest? Hardly. It’s business as usual in Washington. Paulson’s bailout proposal would have granted him unlimited power with virtually no oversight, flatly stating that “Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.”

Where’s the white knight riding to the people’s rescue? For a split second, it looked like it might be Republican presidential candidate Sen. John McCain, who temporarily suspended his campaign last week and returned to Washington to further muddle the bailout negotiations. McCain might have played the maverick to popular effect, calling for the outright rejection of a taxpayer-funded bailout for Wall Street’s “banksters.” Instead, he offered up the same plan, funded by a $700 billion tax cut for investment banks. Could it have anything to do with the fact that McCain’s top five campaign donors are the investment banks Merrill Lynch, Citigroup, Morgan Stanley, Goldman Sachs and JPMorgan Chase & Co., collectively donating more than $1 million this election cycle? You make the call.

That absence of Democratic presidential contender Sen. Barack Obama from the debate has been even more conspicuous. Besides mumble a few platitudes about the necessity for oversight, Obama contributed nothing of significance to the congressional debate—and no wonder! Three of the candidate’s top five campaign donors are major investment banks: the ubiquitous Goldman Sachs, Citigroup and JPMorgan Chase & Co. Together, they’ve contributed $1.5 million to Obama.

Surely the leaders of the Democratically controlled House would heed the will of the people so vigorously stated in the blitzkrieg of e-mails that have bombarded the nation’s Capitol. No such luck. No one pushed harder for the bailout than California Rep. Nancy Pelosi. You guessed it: Three of her top 11 donors in 2008 include investment banks Goldman Sachs, Citigroup and JPMorgan Chase & Co.

There is evidence some local pols have been listening to their constituents. Just as public protest against the bailout has come from the far left and the far right, California’s Democratic Rep. Mike Thompson and Republican Rep. John Doolittle, about as far apart politically as you can get, voted against the proposal. Meanwhile, centrist Democratic Rep. Doris Matsui and Republican Rep. Dan Lungren voted for the bailout.

As this is being written, Congress is regrouping for another go at the bailout bill. With so many elected representatives apparently on the take, the outcome might appear to be inevitable. But not so fast. An increasing number of Americans, Democrats and Republicans, are rising from their slumber. Politicians who choose to ignore this awakening do so at their own peril.