United Liberty

Ever since the “billionaire bailout” of Wall Street passed nearly two weeks ago, the market has signaled its displeasure in the goverment’s decision to shore up the failing system. The bailout passed on a Friday and the following week the Dow had its worse week in history. This created an environment where the Administration took hits for their “failed plan”- a plan that had not even been put into practice. But since markets look forward, expectations of the effects of the plan helped bring about the miserable week on Wall Street.

So what is the Administration’s response? As predictible as the eastern rise of the sun- an expansion of the program.

The “New Paulson Plan” is to take “TARP” (Troubled Asset Relief Program), aka the bailout sold to Congress, as a way to buy out mortgage backed securities off the market and to use its already allocated money for a completely different purpose- the direct recapitalization of financial institutions. This plan is inspired off of the “European Model” of nationalization during rough times and privatization during the good.

The problems with this plan are even deeper than that of the original plan and it stinks of even greater socialization of the financial industry, the latter of which is unarguable. The very definition of socialism is state ownership of private industry and when a government exchanges taxpayer capital in exchange for stock (ownership), it directly meets that definition. For this reason it is unlikely that without a solid super majority, Obama would  be unable accomplish this due to the natural backlash against the very word “socialism” in pretty much any part of America.

So what does the plan call for? Its most significant, although not even close to being the only problem, is the using of taxpayer funds already allocated to the Treasury for TARP for direct investment by the federal government in exchange for participating institutions issuing stock to and meeting the arbitary standards set by the federal government. Here is what the Democrats have in mind-

The government should purchase only stock in financial firms that agree to cut dividends paid to shareholders, adhere to strict limits on executive compensation and curb their use of exotic investment strategies, Sen. Charles Schumer, D-N.Y., chairman of the Joint Economic Committee

Other ideas the Administration seems to be floating around (as if to gauge opinions before shooting in the dark) are the insuring of all bank-to-bank loans and completely removing the last bit of market discipline in the retail banking deposit industry by insuring all deposits, as opposed to just those under $250,000 as was the case last week when the cap was raised from $100,000. Other parts of the piecemeal approach to solving the problem are being looked at, but they are all more of the same. It is hard to trust any proposal by Secretary Paulson- a Goldman Executive- who called the heads of the five largest banks to meet with him this weekend to redevelop his plan. Only in a fascist nation does the government allow the banks to determine its policy action.