The Bailout Profiteers

The Bailout Profiteers

The Wall Street bailout looks a lot like Iraq — a "free-fraud zone" where private contractors cash in on the mess they helped create

by Naomi Klein
October 31st, 2008

In Iraq, the contractors were tasked with reconstructing the country from the mess made by U.S. missiles...Today, a new team of contractors is lining up to reconstruct the U.S. economy — reconstruct it from the mess made by the very banks, brokers and law firms that are now applying for contracts. And it's not at all clear that America can survive their assistance.

As soon as the bailout was announced, it became clear that Treasury officials would hire outsiders to perform their jobs for them — at a profit.

It didn't have to be this way. Five days before Paulson struck his deal with the banks, British Prime Minister Gordon Brown negotiated a similar bailout — only he extracted meaningful guarantees for taxpayers: voting rights at the banks, seats on their boards, 12 percent in annual dividend payments to the government, a suspension of dividend payments to shareholders, restrictions on executive bonuses, and a legal requirement that the banks lend money to homeowners and small businesses.

In sharp contrast, this is what U.S. taxpayers received: no controlling interest, no voting rights, no seats on the bank boards and just five percent in dividend payouts to the government, while shareholders continue to collect billions in dividends every quarter. What's more, golden parachutes and bonuses already promised by the banks will still be paid out to executives — all before taxpayers are paid back.

[The Bank of New York Mellon] will be to the bailout what Halliburton is to the military: the contractor of contractors...bank president Gerald Hassell said, "It's the ultimate outsourcing — because the Federal Reserve and the Treasury do not have the mechanics to run the entire program, and we're essentially the general contractor across the entire program."

Has the Treasury partially nationalized the private banks, as we have been told? Or is it the other way around? Is it Treasury that has been partially privatized by Wall Street, its massive rescue plan now entirely in the hands of a private bank it is directly subsidizing?

This is why the stakes of the bailout are so high: Unless we get a good deal, there will be nothing left over after the banks are done feeding to pay for the meager services now provided in exchange for taxation, let alone for the more ambitious initiatives promised on the campaign trail. The spiraling cost of saving Wall Street from its bad bets is already being used as an excuse for why we can't solve our many other crises, from health care to climate change.

There is a better way to fix a broken financial system. Treasury's plan to buy up the toxic debts never made sense and should be immediately scrapped — a move that would also handily get rid of most of the crony contractors. As for purchasing equity in banks, the next round of deals — and there will be more — has to start from the premise that the banks are bankrupt and will therefore accept whatever terms we choose to impose, including real regulatory oversight. The possibilities of what could be done if a chunk of the banking system were genuinely under public control — from a moratorium on home foreclosures to mandatory investment in green community redevelopment — are limitless.


for the details and complete story:

http://www.rollingstone.com/politics/story/24012700/the_new_trough

http://www.naomiklein.org/articles/2008/10/bailout-profiteers