News Release

Paulson Plan “Would Be Disaster”

AP is reporting: “The man behind the Bush administration’s sweeping intervention in the U.S. financial system is a former Goldman Sachs executive who came to Washington two years ago hoping to streamline regulation of the financial services sector.”

DORENE ISENBERG
Isenberg is chair of the Economics Department at the University of Redlands. She said today: “The problem with the bailout is not its size, but its structure. The purchase of these financial firms and assets with taxpayers’ money will not be complemented by an ownership or control structure that reflects this public ownership. It does not appear that the American people — the new owners — will have a say about executive salaries let alone disposal of profits. There’s not even a plan for new regulations. As Secretary Paulson noted on ABC’s ‘This Week’ with George Stephanopoulos, he couldn’t tell anyone why we’re in the position we’re in. From the Secretary’s statement it wasn’t clear whether he meant that his comments were constrained or that he didn’t understand the mechanism. As the bailout now stands, the regulatory rules that allowed this risky behavior, which is responsible for our systemic meltdown, are still in place, and there’s no plan to tighten them.”

Isenberg is co-editor of Seeking Shelter on the Pacific Rim: Financial Globalization, Social Change, and the Housing Market.

ROBIN HAHNEL
Hahnel is professor emeritus of economics at American University and currently visiting at Portland State University. Hahnel’s most recent books are: Panic Rules!: Everything You Need to Know About the Global Economy, The ABCs of Political Economy: A Modern Approach, and Economic Justice and Democracy: From Competition to Cooperation.

He said today: “No, the government cannot walk away from the financial crisis and let the chips fall where they may. Wall Street, the Republican Party, and the neoliberal wing of the Democratic Party have created a mess so huge that at this point the ordinary person on the street would suffer terribly in absence of massive government intervention.

“However, there is every reason to believe the intervention Treasury Secretary Paulson and President Bush are urging Congress to sign off on would prove to be a disaster. (1) It is fundamentally different from the liquidation of failed savings and loan assets by the Resolution Trust Corporation to which it is being compared, and may well fail to stem the crisis of confidence. (2) While it seeks to put Wall Street back on its feet with a full pardon, it offers no comparable relief or pardon to citizens who have already or will soon lose their homes or suffered bankruptcy. (3) It maximizes taxpayer liability and minimizes opportunities to recoup taxpayer losses when financial institutions recover. And (4) at a time when investment priorities must shift dramatically to move us toward a carbon neutral economy, it would leave these crucial choices in the hands of the same people who squandered the nation’s investment resources over the past two decades while feathering their own nests handsomely. In short, it is a Wall Street idea, peddled by a former Wall Street CEO, that is likely to prove as bad an idea as Wall Street’s last bad idea — deregulate us and allow us to run the nation’s economic business.”

For more information, contact at the Institute for Public Accuracy:
Sam Husseini, (202) 347-0020; or David Zupan, (541) 484-9167