no mistake, the $700-billion request from the Bush administration
including Treasury Secretary Henry Paulson and Federal Reserve Chair
Ben Bernanke, is very much a bailout of Wall Street first and
foremost. The tactics used here are familiar ones. Create shock and
fear, and amplify it by fast-tracking legislative action. Create a
profound sense of urgency, coupled with vague but absolute solutions
with no time for verification or alternatives. Threaten the core
security of every citizen to justify, and obtain approval for, the
transfer of power being sought. In this case, the request is an
unprecedented transfer of power to the U.S. treasurer's office,
with virtually no oversight, regulatory control, or checks and
balances of any kind.

asked dozens of times what the $700 billion would actually
accomplish, Paulson and Bernanke could not supply a single answer of
any substance. Nor could either guarantee, or even assure, that
providing this $700-billion bailout would actually work in resolving
the current financial crisis.

should we believe it would? We have just bailed out at least five of
the top financial institutions, either with cash or guarantees, to
the tune of nearly $400 billion, to no avail. Not a dent was made,
according to these two experts. Why should these additional funds
make the difference? If confidence is the issue, then we are in
trouble, because for many of us, no amount of money will restore it.
Criminal prosecution and rigorous enforcement of current laws
protecting taxpayers and consumers from Wall Street's predators are
the only remedies that will restore any trust or confidence for most

merging of commercial banking (where people deposit their money and
consumer loans are made) and investment banking (where investments
and securities are bought and sold with funds given it) contributed
to the destabilization of credit we are currently experiencing. It
used to be illegal to invest commercial banks' deposits, thereby
safeguarding those monies from the kind of irresponsible speculation
that characterizes so much of Wall Street's activity this past

is important to note that this bailout is completely
unconstitutional. As is our current monetary system, but I'll leave
that for a future discussion. Suffice it to say that banks used to
loan based upon their actual deposits. Now they loan based upon their
reserve requirement, which for commercial banks is around 12 to 1
(meaning for every $1 they have in deposits, they are authorized to
issue $12 in loans). For "investment banks" the ratio is as high
as 40 to 1. So when Wall Street firms such as Lehman Brothers talk
about a $100-million investment that went bad, they really only had
to put up 2.5 percent of that $100 million to make the risky
investment. And pretty darn close to the 0-percent-down home
mortgages the media claims are the culprit to this meltdown. No one
has been able to answer: What percent of the $700 billion is from
nonperforming home mortgages and what percentage comes from
nonperforming Wall Street investments? Ask your congressmen to answer
that question before they move forward.

a bank makes a loan, it places the loan value on its books as an
asset. For example, my bank lends me $100,000 for my home; it now has
an asset of $100,000 on its books. The "mark to market"
accounting rule requires that banks lower the value of the loan/asset
to whatever the current market value of the property is, even though
the loan value is unchanged. This has caused huge losses on many
banks' books because of the drop in property values, even though
most of those same loans are being paid off in a regular manner, with
interest. By simply changing this accounting rule to reflect the true
loan value, billions will come back to the banks, allowing for a huge
release of credit because their loan/borrowing power will be restored
to original levels.

FDIC has regulatory powers to help protect and correct for banking
problems that have yet to be implemented. During the 1980s,
approximately 3,000 banks were failing. The FDIC resolved $100
billion in financial problems for $1.8 billion through the use of its
regulatory authority without any additional tax dollars. Why are
lawmakers ignoring these tools to help resolve the current crisis?
Former FDIC director William M. Isaac told Congress that implementing
these same measures would go a long way in addressing the credit
problems facing us today, especially the problems associated with

for the same reason that mortgage protection was removed from this
$700-billion bailout - because that is not what the money is really
for. Congress freely admits that the $700 billion will be managed by
some of the same Wall Street financiers who got us into this mess.
Paulson has told Congress he intends to "outsource" the purchase
of assets to professional private-asset managers. My guess is that
means his old pals at Goldman Sachs, or its subsidiaries, from whom
Paulson gained so much prior to taking his current position as
Treasury secretary - $33 million upon leaving GS. Most of these
firms are having liquidity issues, so the $700 billion looks really
good to them. The banks, on the other hand, are having capital
problems, so many alternatives exist that would resolve such

fact, Paulson, as CEO of Goldman Sachs, personally oversaw the
creation of many of the highly risky financial products that resulted
in millions, if not billions, of profits for a very select few, but
now constitute the "toxic assets" we taxpayers are being asked to
purchase at undisclosed prices for a potential future gain insured by
stock warrants that have no voting rights, making them virtually
worthless. Never mind that government taking an ownership position in
any privately held corporation is the very definition of socialism.
And if the endgame is to resell it down the road, imagine who might
benefit from such a transaction, especially if it were sold below
market value to "recoup taxpayers' investment." Even the mostly
ill-informed pundits, as well as experts, admit that the real
beneficiaries of this bailout will be Wall Street's elite, and the
larger banks that are currently buying the failing ones to become
"super banks," such as JP Morgan and Citigroup.

funds, short selling (which is banned until October 2, 2008),
derivatives, junk bonds, and the list goes on have also contributed
to the current crisis. The firms that fail as a result of
participation in this financial folly deserve to go under. As for the
subprime mortgages, there are viable solutions, such as resetting the
loan values and payments to affordable rates and letting people stay
in their homes as part of the newly negotiated terms; allowing banks
to recapture actual loan values through elimination of the
mark-to-market accounting rule; intervention via the power of the
FDIC; reinstating the one quarter of 1 percent fee on every
stock-market transaction; and raising FDIC insurance on deposits from
$100,000 to $200,000. These are but a few of the alternative
proposals available that in combination would significantly, but more
importantly immediately, mitigate this crisis.

than 400 of the nation's top economists cosigned a letter to
Congress claiming that the $700-billion bailout is a bad plan. Such
expert opinion must be considered. Congress has heard from only two
- Paulson and
Bernanke. That's it. Why isn't there a demand to hear opposing
thoughts, or at least alternatives, if there is even a chance that
the other two are wrong, as 400 other professionals have
unequivocally avowed?

important of all is that the current proposal, while claiming to have
oversight and regulatory provisions, does not have a single sentence
of enforcement of either. The language consists of "is encouraged
to" and "make recommendations" and has all the teeth of a
pancake. As one congressman put it, the $700-billion bailout proposal
is "full of aspirations but no requirements." It is completely
inadequate as a document of reform, oversight, commitment, and
consequence, let alone remedy. It authorizes $700 billion in
expenditure, but only suggests
the manner in which the expenditures might
be controlled. All reporting requirements must occur after the fact,
and all oversight is the responsibility of the secretary himself. In
other words, the fox is watching the hen house, again. "The
secretary is required to issue regulations or guidelines to manage or
prohibit conflicts of interest in the administration of the program."
It establishes a "Financial Stability Oversight Board" made up of
most of the same agencies that dropped the ball in the first place.

this bill also authorizes the bailout of certain foreign banks. And
there are even earmarks added to this bill at the 11th hour! It is
poor legislation on every conceivable level. There are far more
appropriate alternatives given the chance. Calling your legislator
made a huge difference, evidenced by the House of Representatives
voting 228 to 205 against the $700-billion bailout. These same
legislators are under enormous pressure to reconsider their vote and
pass it on Thursday, October 2. Please call your representative and
your two senators at (202)224-3121 and make your wishes known. Since
elections are next month, they should be more responsive than any
other time.


more information about the bailout plan, visit To download the House legislation, click here.


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