Barely two weeks after Congress agreed to the $700 billion bailout of Wall Street, the original plan is dead.
In fact, there never was a real plan to begin with. From the three-page legislation first proposed by the Bush Administration on September 19, to the bloated 442 page version passed by the House on October 3, the Administration’s strategy remained pretty simple: let Treasury Secretary Paulson have $700 billion in taxpayer money and hope that the sheer size of it would inspire Wall Street to go back to work.
As it turns out, it wasn’t just Congress that had no idea how Paulson would use the money to rescue the financial system. The financial system couldn’t figure it out either.
The problem with the bailout was the same problem that got us into this mess: the regulators were clueless. As worshipers of the free market, they were happy to allow the titans of the financial system to invent ever more indecipherable schemes by which to speculate and earn billions. And when that house of cards collapsed, the regulators had no idea what to do because according to their religion, this could never happen.
So it took the British to come up with the answer: pour the billions into the banks so the banks would start lending to each other, to businesses and to consumers. In exchange for nationalizing the financial establishment, the banks were required to give the British government (a.k.a. taxpayers) shares in their firms. So someday, when the banks recover, the taxpayers will get a piece of what is called “the upside.”
Initially, the Bush Administration couldn’t stomach that approach: using hundreds of billions in public money to rescue private enterprise was one thing. But allowing the government to take an ownership stake in a private corporation? Heck, that’s communism.
That was before trillions of dollars of stock market value went into the toilet. And before America’s export of the financial meltdown to the rest of the world led angry heads of state to show up at the White House gates.
Just as seamlessly as the passage of the British Crown from one king to the next, the Bush Administration Bailout transformed itself from the vague and probably unworkable notion of buying the bad debts of banks, investment houses and who knows who else to investing in the banks.
Meanwhile, guess what? The price of the bailout is way, way more than $700 billion. Wait till you read what it’s really gonna cost us. I’m working on that now.