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Bailing out banks, not people

Mar 28, 2008
By FLYP Staff

Treasury Secretary Henry Paulson loves bailouts—of large investment banks, not individuals losing their homes.

Paulson sanctioned the Federal Reserve’s rescue of Bear Stearns’s shareholder—whose stock is worth $10 instead of being wiped out—and gave an even bigger gift to the shareholders of JP Morgan, who will end up with the good parts of what, after all, was one of the nation’s largest investment banks.

The government (really, the taxpayers) are taking the bad pieces.

Apparently, hard-pressed bankers are one thing. Hard-pressed homeowners are another.

The Secretary’s big initiatives have been, first, to get bankers to put together a voluntary plan which even its supporters say might reach only a few percent of those who have defaulted on their mortgages and, second, the Bush administration’s knee jerk response of cutting taxes.

Bushwhacked by MSNBC’s Chris Wallace, who last week accused Paulson of not having done much to address the human cost of the crisis, Mr. Paulson blurted out, “But this…this administration has been focused on this…I think, very early involved…very early, beginning in August. Working very hard to avoid foreclosures that are preventable, putting in place programs that are making a difference, are working. Are they going to, to prevent the inevitable correction in housing prices? No, but we’re working hard on that and again, I think we were early with the stimulus package.”

Well, $600 doesn’t go anywhere near as far as $61 million—the amount James Cayne, chairman of Bear Stearns, received when he sold his stock this week. Had Bear Stearns not been rescued, Cayne’s payday would have been zero.

And that distinction —between financial rescue or support for individuals or for institutions and their shareholders— roughly defines the different proposals from the Democratic candidates on the one hand and the Bush administration and John McCain on the other.

Clinton and Obama have been talking about multi-billion dollar rescue plans for homeowners. Paulson has been lecturing homeowners that “negative equity” is no excuse to walk away from a mortgage. McCain has insisted that anyone who bought a home he or she really couldn’t afford is a “speculator” and deserves to lose his or her house.

It’s almost a caricature of Great Society-like help versus laissez faire economics (except for bankers).

Who do you think is right? Let’s debate in this blog our cover story for these two weeks.

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