Sunday, September 21, 2008

On the bailout

We are (all) still getting our heads around the astonishing week that has passed in global financial markets. The subject now is the bailout plan, whose size was summarised by the New York Times like this:

"A $700 billion expenditure on distressed mortgage-related assets would roughly be what the country has spent so far in direct costs on the Iraq war and more than the Pentagon’s total yearly budget appropriation. Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States."

Well, there's a thing. Now, here's a thing: separately, the New York Times has also published the draft proposal for the bailout. Look at this part of the text.

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.

This, in the context of the earlier sub-clause:

"The Secretary is authorized to take such actions as the Secretary deems necessary to carry out the authorities in this Act, including, without limitation: . . . "

One commentator had this to say about the actions of US Treasury Secretary Henry Paulson:

`He's asking for a huge amount of power,'' said Nouriel Roubini, an economist at New York University. ``He's saying, `Trust me, I'm going to do it right if you give me absolute control.' This is not a monarchy.''

The usually market-savvy blog site Naked Capitalism added this:

"This puts the Treasury's actions beyond the rule of law. This is a financial coup d'etat, with the only limitation the $700 billion balance sheet figure. The measure already gives the Treasury the authority not simply to buy dud mortgage paper but other assets as it deems fit. There is no accountability beyond a report (contents undefined) to Congress three months into the program and semiannually thereafter. The Treasury could via incompetence or venality grossly overpay for assets and advisory services, and fail to exclude consultants with conflicts of interest, and there would be no recourse. Given the truly appalling track record of this Administration in its outsourcing, this is not an idle worry.

But far worse is the precedent it sets. This Administration has worked hard to escape any constraints on its actions, not to pursue noble causes, but to curtail civil liberties."


This is a quintissential tax justice issue: it is, as we have just explained (and we urge you to read our last blog in particular), the result of the world's wealthiest individuals and institutions shifting risks, and the consequences of risks, onto taxpayers, and walking away with the proceeds - with (as we explained) tax havens slap bang in the middle of it all.

To end, the economist Paul Krugman at the New York Times added:

There’s no quid pro quo here — nothing that gives taxpayers a stake in the upside, nothing that ensures that the money is used to stabilize the system rather than reward the undeserving. . . Treasury needs to explain why this is supposed to work — not try to panic Congress into giving it a blank check. Otherwise, no deal.

This will be debated in decades to come. We'll (of course) return to this theme too. But for now, we'll just leave it at that.

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