The media has been working overtime since the historic House of Representatives vote on Monday to turn public resentment over the Paulson TARP plan into support, spinning it now as a "rescue plan" instead of a Wall Street bailout. Representatives who voted against the plan are being enticed to change their minds.
Simultaneously, the House e-mail system that seemed to work just fine last week when the opposition to the bill was most intense is now largely inoperative as the pressure builds for another vote, possibly as early as Thursday. In fact, the IT folks at the House of Representatives have taken measures to electronically throttle back access to the server. Just temporarily, of course. Keep moving folks, nothing to see here.
The fact remains that the TARP plan in its present form remains a blatant gift of taxpayer money to the politically connected elite institutions that remain on Wall Street, most notably Goldman Sachs. Paying more than market value for mortgage-backed assets (and the only way this plan would help the capitalization of any financial institution is if the government pays more than market value) is a gift. In fact it is worse than a gift- it is a money gift plus a taxpayer funded put on the purchased securities, most of which are likely to decline even further in value as the housing crisis continues to worsen.
Many voters opposed the TARP plan because they are philosophically opposed to government intervention in markets. Others are more flexible in this regard, but realize that there are alternatives to the TARP plan that will be more effective in the long run and that better protect the taxpayer. Henry Blodgett discusses a few of them here. These proposals would replenish needed capital into the banking system without creating a windfall for the partners of Goldman Sachs and Morgan Stanley as the TARP plan would.
In an ideal free market, business owners are punished for taking foolish risks by having their equity diminished or wiped out. When Bear Stearns went down, the equityholders suffered. Likewise for Lehman, AIG, Wachovia and WaMu. The real perversity of the Paulson TARP plan is that Goldman Sachs partners and other equityholders would reap a windfall as the government overpays them for the bad assets and insulates them from further depreciation of those assets. The stock price of this politically connected investment bank, which was at the forefront of the fraudulent mortgage securitization industry, could double. Strengthened by the gift of taxpayer money, it could gobble up the assets of its insolvent former competitors (which went bankrupt by engaging in the very same activities) and come out of this significantly strengthened.
That is un-American. Don't these people have enough advantages in life?
If taxpayer money needs to be injected into the banking system in order to restore liquidity, it could be done through an institution that is on the verge of failure, as Wachovia was. The government could nationalize the bank with existing shareholders receiving credit only to the extent that assets exceed liabilities at the time of nationalization. The infrastructure of the nationalized bank could be used to loan money into the economy. When the crisis eases, it could be sold back to the public in an IPO. This way, no taxpayer money ends up in the packet of shareholders or towards paying for golden parachutes. It all goes toward easing the credit crunch.
Although not knowing all the details, most voters sense that the TARP plan is more a giveaway to Goldman Sachs than it is a solution to the credit crunch. Make no mistake- the voters will notice who votes for the TARP plan when it comes up again, and vote accordingly in three weeks. Members of Congress who initially voted against the plan will especially be singled out for punishment if they change their minds.
Congress should know that even without its e-mail.