Time to Fix the Bailout of all Bailouts

By Mary Kane
Tuesday, October 28, 2008 at 9:01 am

Economist and former Labor Sec. Robert Reich, who spoke out early and forcefully in opposition to the $700-billion Treasury Dept., rescue plan, is back again, this time calling to “Amend the Bailout of all Bailouts.”

Instead of quickly passing a stimulus package, Congress should concentrate on putting some conditions on that bailout, Reich said, considering Wall Street’s recent tendency to treat it as a trip to the candy store. Banks are hoarding cash for takeovers and otherwise using it for their own purposes, rather than lending it to consumers as the bailout intended, The New York Times noted.

As TWI’s Matthew Blake noted, insurance company AIG executives spent $443,000 for a weeklong retreat at a resort and spa, just after getting an $85 billion bailout from the government.

In the middle of accepting billions of dollars of taxpayer money, the securities industry is still planning on awarding $20 billion in bonuses to top performers this year, with some getting the same amount they did last year — before they were partially nationalized.

I guess that’s Wall Street’s way of rewarding executives for their massive and unprecedented failures. From Reich:

Paulson’s taxpayer-financed bailout continues to put money into the wrong pockets. So another item Congress should get to as soon as it returns: amend the Bailout of All Bailouts (the so-called “Troubled Asset Recovery Program”) to force big banks to loan out at least 50 percent of the amounts they receive in cash from the government. In addition, because dollars are fungible — that is, a dollar received from the government functions the same as any other dollar of bank assets — the big bank beneficiaries of the bailout should be barred from (1) paying lobbyists who have anything whatever to do with administration or implementation of the bailout; (2) buying up other financial institutions; (3) paying dividends to shareholders; or (4) paying any bonuses or severance packages to any executives — as long as the bailout continues. There’s simply no excuse for using taxpayer dollars for any of these purposes.

He’s got a point.

If Wall Street continues to play around the taxpayer money from this rescue bill, an already skeptical public is going to get even more angry — and rightly so. In return for accepting all the help is an implicit guarantee that the financial-services industry will face more regulation. With the kind of behavior Wall Street has already exhibited, the hammer may come down sooner, and harder, than first imagined.

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