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Paulson Thinks Protectionism for Wall Street Banks Is Okay
That is effectively what Mr. Paulson was quoted as saying in an NYT article today. He was asked about the generous terms for his bailout, which will give the nation's nine largest banks close to $80 billion in subsidies over the next five years. Paulson rejected the idea that he could have demanded market terms for the government's investments in the banks: "I could not see the United States doing things like putting in capital on a punitive basis that hurts investors."
It would have been appropriate to highlight this comment and perhaps even devote a separate article to it. Secretary Paulson has repeatedly condemned protectionism and warned how it can hurt the economy. There is no economic theory that shows that the economic distortions created by subsidies for major U.S. banks are any less harmful than subsidies for any other industry.
--Dean Baker
COMMENTS (7)
Now that the US has pretty much established de facto that we can not allow certain major institutions, such as Bank of America, Citigroup, GM, to fail, shouldn't there be some valid questioning of current senior management practices, the real levels of actual responsibility for success or failure that executives bear, and the existing justifications for compensation incentives ?
Posted by: silverfox | October 23, 2008 12:17 PM
silverfox: EXACTLY. I personally look at this bailout as equal to welching on a bet. When one gambles and wins does one just hand the money back to the loser, no. This is a RIGGED game and ends up as a lose-lose situation. As a TAXPAYER I have no respect for welchers enough to bail them out and I don't love them enough to be charitable. The gambled, they lost, either cough up some more cash out of THEIR OWN pocket or leave the table and go home. Let some other players step up to fill the hole. 2big2fail is a concept in their minds NOT in mine.
Posted by: Mike Meyer | October 23, 2008 12:38 PM
You guys are right that despite the capital infusion to the top 8 or 9 banks, not much restriction on exec compensation.
As Dean accurately reported, bail-out Czar Neel even told execs NOT to worry too much about the restrictions as they are easy to comply.
The big problem is golden parachutes for the failed/pathetic execs though.
when Countride bought over, many many executive vp and plenty of senior VPs were let go immediately. So Dean, heads do get roll.
Posted by: James | October 23, 2008 1:43 PM
One important thing that Dean or the site might NOT have mentioned: Not all the 8 banks wanted the infusion. BoA being one.
Posted by: James | October 23, 2008 2:05 PM
I agree with the sentiments expressed by Silverfox and Mike Meyers, and I'm sure many other readers do too.
However, I assume economies DO need some 2big2fail entities (like banks) and if they truly are functionally 2big2fail, they are quasi-public actors that should be sensibly and vigorously regulated
Posted by: EconDumbo | October 23, 2008 2:14 PM
Great blog Dean. Keep it up!
Don't forget how Paulson the protectionist just recently pledged to Japanese conglomerate Mitsubishi that we (the U.S. taxpayers) would PROTECT Mitsubishi's investment in Morgan Stanley.
But when joe-six-pack screams he cannot work for the 50 cents an hour wages they pay in low wage countries our Bush/Paulson they call him a protectionist.
Hypocrites.
Posted by: jess | October 23, 2008 9:01 PM
Did you all see the great article in the Nation about Paulson & Son? Junior is looking for the local Portland government to pay for his new baseball stadium.
I ask then, why do I play by the rules? What moral compass tells me to behave yet these guys don't? Their actions tell me to screw everyone and go on a rape and pillage attack for my own personal gains. (I won't do this though. They control the police so they will never suffer the same fate that I would.)
Posted by: EP3 | October 24, 2008 11:57 AM