The global economy has been put into the economic equivalent of a full nelson by a financial system threatening to collapse under the weight of a complicated pyramid scheme. The Bush administration sounded dire warnings and cobbled together a vaguely flushed-out rescue plan promising the injection of up to $700 billion of taxpayers’ dollars into Wall Street firms.
After first announcing a plan to buy potentially worthless loan portfolios from banks, the administration recently changed course and announced it will follow English Prime Minister Gordon Brown’s equity plan. That new plan calls for investing $250 billion in the nation’s leading banks in exchange for an ownership interest in those companies. The hope is that the infusion of tax dollars in these institutions will stabilize the markets, loosen up available credit, and get the economy going again.
According to Treasury Secretary Henry Paulson, bold action must be taken to stabilize the financial markets or our entire economy may collapse. The basic premise of his plan is that a massive injection of taxpayer dollars into financial institutions on the verge of bankruptcy will shore up the financial market. Meanwhile, ordinary American workers are left on the outside looking in as the Wall Street’s titans that triggered this mess line up for their billion-dollar handouts.
While the financial crisis has gotten so bad that bold global governmental intervention is necessary, the rescue plan shouldn’t be a handout without strings. Mr. Paulson’s latest plan involves virtually no preconditions. The administration’s plan seems to be to cross their fingers and hope Wall Street has sobered up enough to figure a way out of this mess. Ironically, Mr. Paulson and President Bush, both outspoken free marketers, seem intent on socializing the risk and privatizing much of the upside of the taxpayers’ expensive venture.
Instead of simply wishing Wall Street well as they count our money, we should insist that negligent managers be terminated as well as obscene executive pay, and on strong oversight to insure that the banks don’t fall back into bad habits. The banks we now partly own must also immediately put our investment to work at affordable rates for ordinary Americans, and suspend shareholder dividends until the taxpayers’ are paid back.
Finally, and most importantly, these banks should also be required to stop foreclosing on the American dream and start working out solutions that will keep families in their homes and out of bankruptcy. Avoiding massive foreclosures is good business and good for America. The Bush administration’s current voluntary housing assistance plan is failing and a mandatory plan needs to replace it immediately.
It’s very difficult and heartbreaking for me to explain to a mother of three who works two jobs in my district in Lincoln Heights, that although she made her house payments on a regular basis before her adjustable rate exploded more than doubling her monthly payment, that we need to bail out the very folks that sold her that deceptive sub-prime mortgage while offering her family no relief whatsoever.
Taxpayers victimized by runaway predatory lending practices shouldn’t be victimized a second time by being forced to invest their hard earned tax dollars in the companies that locked them into financial nightmares without meaningful preconditions to protect that investment as well as a promise that consumer relief is on it’s way.
It’s time for the administration and Congress to create a second stimulus package targeting the backbone of our economy — American workers. Declining retail spending and production, coupled with rising unemployment, is threatening a deeper recession that will swallow Mr. Paulson’s efforts if additional action isn’t taken soon. If he hopes to save his rescue plan, Mr. Paulson needs to begin working with congressional leaders fashioning a stimulus package that targets the real economy.
The cornerstone of that package should be that for every dollar we invest shoring up sick financial institutions, another dollar should be invested in economic recovery strategies such as job creation projects that will rebuild and expand our crumbling infrastructure, the extension of unemployment benefits, and assisting ailing state and local governments plagued by financial troubles resulting from the economic chaos.
Despite a couple of hiccups, Wall Street got their rescue plan in record time. It’s time to adopt a similar sense of urgency assisting the rest of America. Neither our economy nor hard working Americans can afford to bank any longer on the empty promise of trickle down economics.
Kevin De León
Kevin De León is the incoming chairman of the Assembly Appropriations Committee representing the 45th Assembly District in Los Angeles.