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Michael Winship: The Oligarchy's Bailout Ball

(Photo by Robin Holland)

Below is an article by JOURNAL senior writer Michael Winship. We welcome your comments below.

The Oligarchy's Bailout Ball
By Michael Winship

You know what they say – half a million dollars just doesn’t go as far as it used to. News from the White House that $500,000 was the cap the government wants to put on executive salaries at the banks receiving bailout cash had some on Wall Street and along the plush corridors of Manhattan’s swank Upper East Side hollering “Unfair!” (But without those unsightly street demonstrations and picket lines, of course.)

“You Try to Live on 500K in This Town” was the tongue-in-cheek headline in last Sunday’s NEW YORK TIMES. Just add up private school tuition, mortgage payments, maintenance fees and wages for the nanny and you’re already up to more than $250,000 a year – and that’s pre-taxes, assuming you’re paying any. Then tote up payments and upkeep on vacation and weekend homes, charity balls, car and driver – pretty soon you’re maxing out your American Express Black Card.

But they work hard for their multi-million dollar salaries and bonuses, perks and solid gold benefits, complained some of the financiers. Besides, executive headhunters say, the money giants just can’t get good help for anything less. Good help? Spare us the kind of moguls who helped us straight into the current deep, dirty hole we’re trying to climb out of.

“Like spoiled, petulant children,” is how WASHINGTON POST columnist Steven Pearlstein described them. “These guys won't be happy until the government agrees to relieve them of every last one of their lousy loans and investments at inflated prices, recapitalize every major bank and brokerage and insurance company on sweetheart terms and restore them to the glory days, so they can once again earn inflated profits and obscene pay packages by screwing over their customers and their shareholders.”

Pearlstein was reacting after the five percent dive that stock prices took following freshly minted Treasury Secretary Timothy Geithner’s announcement of the Obama Administration’s Financial Stability Plan. It’s the latest iteration of the bank bailout plan intended to go hand-in-hand with the economic stimulus package. Combined, as much as three trillion dollars may be at stake.
The plan immediately was attacked by many as too vague and ineffective. Part of the trouble, critics say, is that Geithner isn’t part of the solution, he’s part of the problem – former head of the Federal Reserve in New York and a protégé of Clinton Treasury Secretary Robert Rubin, who last month retired as senior counselor at Citigroup. That’s the bank the government agreed to insure against projected losses of $306 billion, on top of bailouts totaling $45 billion. In other words, Geithner’s a player.

The NEW YORK TIMES reported that in preparing the Financial Stability Plan, Geithner opposed tougher conditions on investment firms sought by others in the White House. Geithner, the TIMES wrote, “successfully fought against more severe limits on executive pay for companies receiving government aid… resisted those who wanted to dictate how banks would spend their rescue money. And he prevailed over top administration aides who wanted to replace bank executives…”

This week, on The Baseline Scenario, a blog he co-founded, MIT professor of global economics and management and former International Monetary Fund chief economist Simon Johnson wrote, “There comes a time in every economic crisis, or more specifically, in every struggle to recover from a crisis, when someone steps up to the podium to promise the policies that – they say – will deliver you back to growth. The person has political support, a strong track record, and every incentive to enter the history books. But one nagging question remains. Can this person, your new economic strategist, really break with the vested elites that got you into this much trouble?”

That question caught the attention of my colleague Bill Moyers, who interviewed Johnson on the current edition of BILL MOYERS JOURNAL on public television.

The problem, Johnson told him, is that via millions spent for political contributions and lobbying efforts, the revolving door that sees elites shuttle between jobs in government and business, and by creating a situation in which technical knowledge is limited to a privileged few, the banking and financial services industry has become a kind of ruling oligarchy that stifles attempts to shake up the status quo and make the real change necessary to get us out of the current crisis. “Either you break the power,” Johnson said, “or we’re stuck for a long time with this arrangement…

“The policy that we seem to be pursuing, of being nice to the banks, is a mistake. Both from a technical/economic point of view, and from a deeper political point of view… [The banks] think that we’re going to pay out ten or 20 percent of GDP to basically make them whole. It’s astonishing.”

Johnson has written on The Baseline Scenario blog what he thinks needs to be done: "Reboot the financial system. Find out immediately which banks are insolvent using market prices. Allow private owners to fully recapitalize, if they can. Have the FDIC, the Federal Deposit Insurance Corporation, take over all banks that cannot raise enough private capital, and try to re-privatize those banks quickly, while making sure the taxpayer has strong participation in the upside."

Unfortunately, Johnson fears the oligarchy will prevail. “My intuition is that this is going to get a lot worse,” he told Moyers. “It’s going to cost us a lot more money. And we are going down a long, dark, blind alley…

“Eventually, of course, the economy will turn around. Things will get better. The banks will be worth a lot of money and they will cash out…. We and our children will be paying higher taxes so those people could have those bonuses. That’s not fair. It’s not acceptable. It’s not even good economics.”

Johnson doubts the political will exists to do what needs to be done. According to Tuesday’s BOSTON HERALD, last August, another former Treasury Secretary and Rubin pal, Lawrence Summers, now chairman of the of the National Economic Council, hitched a ride back from the Democratic National Convention on board a Citigroup corporate jet – “the same type that… Citigroup infamously wanted to replace last month with a new $50 million French jet.”
Summers didn’t pay for the trip, but Citi said it has paid the appropriate taxes. The Herald reported that the plane “was the same one former City chief executive Sandy Will took on vacation to Mexico last month, it reportedly includes a full bar, crystal stemware and ‘pillows made from Hermès scarves.’”

When you’ve got it, flaunt it, Larry. Why go to hell in a handbasket when you can fly there executive class, leaning back on a French silk pillow? It’s good to be part of an oligarchy.

Please note that the views and opinions expressed by Michael Winship are not necessarily the views and opinions held by Bill Moyers or BILL MOYERS JOURNAL.


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I think that we should pull back are troops from the war in Afganistan.

$7 hour isn't that close to minimum wage? I would have recommended $14,500.00 per year. That or jail. What they did was steal from people like me. I wasn't making the big $ I was a fairly conservative investor.

“Capitalism is dead: It committed suicide: See the vultures picking the bones? We have no government besides the wealthy fascists behind the clowns in Washington. Boycott, strike, sit-in, co-operate with your peers, and refuse to pay. They'll want to negotiate after about six weeks because they're even more addicted than the general public. Food is now the key element in play.”

It may work, at least temporary. It is better than doing nothing. The BOYCOTT worked very well during the sixties – “THE CIVIL RIGHTS MOVEMENT!” It is better to “boycott” than doing nothing! We can start with number of things; One good point would be with the Media that support status quo. Two years ago we traded our old car for a new one. We did not realize that the gas would go to $5.00 a gal. If we had known how bad was going to be, we would have kept our old car for few more years. Since than we have cut down on everything. That is our part of “BOYCOTT.” This will work better than calling or writing letters to the representative.
Do not wast money on mail and telephones to the representatives! It never did
any good for the average citizens! Which is yours?

Danny Clarke:
This is not a crisis of confidence in the economy.
System-antics doesn't work in political economy.
Carter demonstrated how your approach to economics will not work even in normal times.
If you insist upon a quant approach for your own peace of mind, understand who has benefited from what went down on 9/11 and what went down this past fall. I know you mean well but public opinion and frustration is way ahead of you, and this makes you look naive, foolish or ingenuine. Capitalism is dead: It committed suicide: See the vultures picking the bones? We have no government besides the wealthy fascists behind the clowns in Washington. Only peaceful civil disobedience can save us now. We must "vote" in every action we take each day. Criticize, demand answers, boycott, strike, sit-in, co-operate with your peers, and refuse to pay. They'll want to negotiate after about six weeks because they're even more addicted than the general public. Food is now the key element in play.

During the Manhattan Project a method called the Systems Approach was created to approach large projects in a more systematic manner. This method was also used in the Lunar Project that put a man on the moon.

Question: Why wasn't this method used in the recent stimulus program?

Below I give what is normally the first step in taking the systems approach: a project definition document. Does anyone believe that even this superficial level of analysis was done prior to enacting the largest government spending program on record?

The Stimulus Project: A Systems Approach

Project Definition Document

 Purpose
- Restore confidence in the U.S. economy

 Goals and Objectives
- Provide jobs for average U.S. citizens
- Free up the credit flow
- Remove toxic assets from the market
- Stop the increase in foreclosure rates

 Success Criteria
- The average person with a high-school diploma will be able to find a job.
- Businesses of all sizes will be able to get loans
- The banks would not be afraid to make inter-bank loans
- The rate of home foreclosures will decrease

 Project Context
- This work must take place within the constraints imposed by the constitution of the United States.
- All three branches of government will participate
- It should be recognized that partisan politics will not go away and will need to be taken into account

 Project Dependencies
- The good will of all branches of government
- The support of the citizens of the U.S.
- The leadership qualities of the POTUS
- The health of POTUS

 Scope Specifications
- The economy will be turned around so that the spiraling job losses and credit crunch will be reduced or eliminated. As a result, we begin to reduce the national debt and trade deficit.
- At the same time, we will reduce or eliminate our dependency on foreign oil and begin to address the areas related to global warming.
- We will readdress our foreign policy with an objective of reducing troop levels world-wide, thereby saving costs and improving our national image.

 Out-of-Scope Specifications
- We will not engage in a new war to assist with the economy.
- We will not manipulate the value of the dollar or change any of our international agreements to achieve economic stability.
- We will not “beggar our neighbors” by establishing new trade barriers that are detrimental to the economy of either our neighboring countries or to the European Union.

 Assumptions
- It is not too late to regain the confidence of the U.S. citizens
- It is possible to overcome partisan differences, at least temporarily
- The international financial community is willing to set aside its greed for a moment for the good of all
- We have a 95% confidence level that our solution will work
- We have a backup plan if our solution doesn’t work

 Constraints
- The number of hours in the day
- The continued good health of POTUS
- Our constitution

 Risks
- The stimulus plan may not work
- Could lose confidence of citizens and pols for indefinite period of time
- Could cause explosive inflation

 Stakeholders
- Secretary of Treasury
- Congress
- U.S. Citizens
- Rest of the world

 Recommended Project Approach
- Create a massive injection of money into the system
- Use the money to
 Stabilize the financial system by investing in or insuring bank holdings
 Invest in infrastructure
 Invest in green technology
 Invest in education
 Invest in health care
 Isolate toxic stocks by placing them into “bad banks”
 Cut some taxes for low-and-middle income families and businesses
- Insist on accountability and transparency
- Extend unemployment benefits
 Alternative Project Approaches
- Do nothing and let the economy sort itself out
- Give money directly to those who need it most
- Inact a “buy-American” policy to protect jobs in the U.S.
- Halt all immigration
 Organizational Change Issues
- Many will profit and many will suffer
- Many will lose their jobs
- Many will not be re-elected

 Policies and Standards
- The current policies must change

 Preliminary Cost, Schedule and Resource Estimates
- Few know and no one will tell

 References to Supporting Documents
- CNN daily broadcasts for the last year
- OMB report
- U.S. Budget for FY 09-10

Connect to Baseline scenario for an interesting dialog about taking ACTION, and what might an ordinary citizen do to help our new President reclaim the Nation from the Oligarchy. Send your ideas about TEARING DOWN THIS MASTERS HOUSE.

“It’s the latest iteration of the bank bailout plan intended to go hand-in-hand with the economic stimulus package. Combined, as much as three trillion dollars may be at stake.”
It is not “may be” but is a fact that,
in 2008 they have already raided the treasury by $1.7 trillion plus $897 billions in 2009. It brings the country “down the dark blind alley...” into deeper depression due to greed, corruption etc.
Just the bankruptcy of LBH Inc. and Washington Mutual amount to $1 trillion dollars
not to mention the other 27 banks that went bankrupt.
Very accurate article and good professional work.

Forgive the double post, but I meant to say: (There is no escaping this failure, and there is no legitimate reason for the predator class {NOT} to absorb the pain and loss for the FAILED products, instruments, and PONZI scheme models they vigorously bruted and hoisted onto the entire world.

Compare the compensation packages of European financiers with Americans. It is an hilarious fiction and myth that there are not talented brilliant people willing and capable of managing responsibility for American banks who would accept compensation packages in the half million or million dollar range and replace the FAILED PONZI SCHEME INSIDER MALFEASANT and PERFIDIOUS management currently in control making hundreds of millions of dollars or mor a year.

"Ye shall know the truth, and the truth shall set you free". The gig is up on the predator class. They FAILED miserably. Much of their conduct is borderline criminal if not perfidious. They offshored outrageous fortunes, and left the Ameican taxpayer with imponderable debt, deficits, and horrorshow economic and unemployment realities. The predator class days are over. The existing regimes must be tossed out and banned from any access to positions of authority in the markets or the finance sector. They FAILED. They FAILED catastrophically. There is no escaping this failure, and there is no legitimate reason for the predator class to absorb the pain and loss for the FAILED products, instruments, and PONZI scheme models they vigorously bruted and hoisted onto the entire world.

FAILED banks and financial institutions must FAIL and be disolved. Management of those FAILED banks and finacial institutions must be fired, and replaced.

Throwing more Fed printed, and taxpayer backed trillions at FAILED institutions, and FAILED management, and FAILED models is a recipe for disaster and the certain collapse of America.

The predator class is accountable. There is no escaping this terrible truth.

"Permit me to issue and control the money of a nation, and I care not who makes its laws." Mayer Anselm Rothschild, Banker, (The Oligarch of Oligarchs if ever there was one.)

There is no better baseline context for this whole entire mess than "Money as Debt", available on Youtube for viewing. It's achieved 5 stars Youtube ratings for a reason.

It will blow the mind how The Oligarchs create wealth, power, and domination out of thin air, via their license to do so. The Federal Reserve Act of 1913 was a near century fight ... for the Oligarch's license.

"MONEY AS DEBT" Google it.

I wonder if President Obama would have taken over the Titanic too after it hit the iceberg: excuse me skipper I'll take it down from here. And then next handed out pails with the rest of the congressional crew. It all seem dumb and dumber to me!
Change, or is it time to abandon ship?


Let's put it bluntly, if I had 500,000 in yearly wages, I'd practically be in economic Nirvana.

Insurgencies eventually terrorize and assassinate oligarchies. How long will it take? See also "Obama's Awful Recovery Plan" by Prof. Michael Hudson at Counterpunch and learn about "zombie banks." He appeared today on Democracy Now (Princess Amy Goodman) with Clintonite Robert Kuttner. It's worth a download too.

I'm glad I congratulated you for hard work last week Michael Winship. The above is a well-stated and accurate essay. Courage Man!

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