Editorials

Bailout not exactly going as advertised

Monday, November 10, 2008 11:47 AM EST

Monday, Nov. 10, 2008

It boggles the mind. Oct. 13, when the U.S. Treasury Department announced the financial team handling the $700 billion bailout of Wall Street, turns out the chief investment officer previously served as executive director of Paul Bremer's Coalition Provisional Authority in Baghdad during the early days of the Iraq War. Their main function was to hand over pallets of taxpayer cash to private contractors who actually ran the occupation. A fortune promptly disappeared into the desert.

While the chattering class prattles away on TV about Barack Obama's cabinet and how the president-elect will govern come January, the bailout garners too little attention even as Detroit automakers line up behind banks with their hands out.

The last thing anyone wants to hear about the Wall Street bailout is that the Bush administration's approach to the financial crisis parallels its conduct of the Iraq war.

"Under cover of an emergency," Naomi Klein writes in the Nov. 13 Rolling Stone, "Treasury is rapidly turning into an economic Green Zone, overrun with private companies collecting lucrative contracts." One is Rudy Giuliani's law firm.

In Iraq, no-bid contractors were charged with rebuilding the country we bombed with "Shock and Awe."

Now, a new team of contractors is lining up to rebuild the U.S. economy from the mess made by the very banks, brokers and law firms applying for contracts. Treasury hired outsiders to perform their jobs for them at a profit. Private companies wanting to help manage the bailout received two days to apply for massive multi-year contracts. Sound familiar? A mad rush was necessary, of course, because the economy was about to implode. No time once again for open bidding. No time to draft rigorous rules which might root out blatant conflicts of interest.

The first major contract went to a firm that provided legal support to companies trading mortgage-backed securities - what Warren Buffett called the "financial weapons of mass destruction" at the heart of the meltdown. This firm has represented seven of the nine banks in which Treasury was negotiating to spend $250 billion of the bailout money on buying stakes. We're expected to believe that when it comes to negotiating deals for the taxpayers that could exact real costs, it will set aside loyalties to such large clients.

Secretary Hank Paulson promised the banks won't "hoard" the money, but quickly "deploy it" through the economy in the form of badly-needed loans. Ask National Copper Products how that went. "There is no obligation for banks to lend the money one way or the other," a Treasury spokeswoman said. "But the banks have the understanding" that the money is intended for loans. "We're not looking to control their operations."

Gary Crittenden, chief financial officer of Citigroup, hinted his company would use its $25 billion share to buy up competitors. The handout "does present the possibility of taking advantage of opportunities that might otherwise be closed to us."

Morgan Stanley plans to pay themselves $10.7 billion, much of it in bonuses. "Not only did we, the taxpayers, save their company," writes Bloomberg columnist Jonathan Weil, we funded their 2008 bonus pool."

Contrary to the tougher deal British Prime Minister Gordon Brown cut with his banks, U.S. taxpayers received no controlling interest, no voting rights, no seats on the bank boards. Shareholders continue to collect billions in dividends every quarter. Golden parachutes and bonuses already promised by the banks will be paid out to executives - all before taxpayers are repaid. The megacontract awarded to Bank of New York Mellon from 70 firms prompts Klein to question whether Treasury partially nationalized the banks - or Wall Street partially privatized Treasury. Treasury blacked out 10 lines in the contract that reveal how much Bank of New York Mellon will be paid - even more secretive than Halliburton's Iraq contracts.

Canadian Klein, a columnist for The Nation and The Guardian, wrote "The Shock Doctrine," her scathing indictment of how the Bush administration used disasters such as 9/11 to forward its political agenda. Where is the premise that bankrupt banks ought to accept whatever terms that are imposed, including real regulatory oversight? It matters because Paulson has already implied that Social Security and Medicaid might not survive the budget crisis he's creating for the next administration.

There might not be any services left from the taxation we pay after greedy banks get done feeding at the trough to make them whole for bad bets.

The bailout is already being used as an excuse for why we can't solve other crises, from health care to climate change.

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