Where the money is going is just the first question.
Sunday’s New York Times reports that President Obama is moving swiftly “to tighten the nation’s financial regulatory system” in response to the destruction caused to the economy by unregulated transactions and conflicts of interests in the rating of securities.
That’s terrific. But, of course, the damage has been done and the patient (our economy) is still lingering on the verge of outright collapse. In the near panic to
keep some semblance of order intact, Congressional Democrats worked with the Bush White House late last year to pass the Emergency Economic Stabilization Act (EESA). That legislation moved approximately $350 billion into the Troubled Asset Relief Program (TARP) to be spent at the discretion of the Treasury Secretary. A second $350 billion appropriation was made earlier this month.
The original plan for this money was to buy up so-called “toxic assets,” but that actually didn’t happen. Instead, the money has been doled out, in mysterious ways, to reinforce teetering national banks in order to stabilize the nation’s financial system. As the TARP program’s Congressional Oversight Panel (COP) reported on January 9th, very little of the money injected into these banks is being loaned. About this, the COP report bluntly noted: “The Panel still does not know what the banks are doing with taxpayer money.”
The absence of transparency about where these billions of dollars is going is a huge problem, even if one accepts the argument that the money was necessary to prevent a collapse. It’s one thing to have a “black budget” for secretive military programs. But this is hardly that. This is the wholesale injection of hundreds of billions of tax dollars into the domestic economy.
“Transparency is critically important,” says Washington Senator Maria Cantwell. “We need to know where the money is going and how it is being spent.”
Sen. Cantwell voted against both appropriations of the TARP money and, according to the Seattle Times, she says she is uneasy with the role the government is playing in picking winners and losers in the way it decides who gets how much money.
It’s hard to dispute Sen. Cantwell’s arguments. When you think about it, the Treasury Department’s improvised financial irrigation system is going to be a deeply unsettling issue for years to come. And it should be. We have a Constitutional prohibition against the government playing favorites when it comes to religion. But now we’re allowing the government the discretion to play favorites in the way it dispenses huge sums of the public wealth, for the primary purpose, thus far, of rescuing banks whose top officers and shareholders are essentially exempt from the economic travails of ordinary taxpayers.
If you’re a poor and frustrated person in America, it is not going to help your morale to learn that the federal government’s top priority when times got tough was to give money to bankers and insurers who, in large part, caused the crisis.
Supply-side (a.k.a. “trickle down”) economics is facing ideological bankruptcy because of this and maybe that’s all to the good. But that doesn’t resolve the poignant social and moral questions that are mounting because of the way the financial crisis is being addressed.
In a column posted this weekend, Robert Reich, the former U.S. Labor Secretary who was one of President-elect Obama’s economic advisers, argues that “American has embraced Lemon Socialism.”
Reich points out that because of the Federal Reserve’s intervention, the cost to taxpayers is far greater than that represented just in the TARP appropriations. Like Sen. Cantwell, Reich is deeply troubled by the lack of transparency and he suggests, for example, that the Federal Reserve’s decisions are not being brought before the full Board of Governors in order to protect the decision-makers from the requirements of the Freedom of Information Act (FOIA).
But it’s his primary concern that raises the most troubling questions. Reich’s warning is that, even under President Obama’s course, taxpayers will be tapped, and come to largely own, those parts of our economy that our failing, and failing in no small part because of bad business decisions and poor management. The parts of the economy that taxpayers won’t be needed to salvage, are the ones that are most likely to return to profitability the soonest.
“It’s called Lemon Socialism,” he writes. “Taxpayers support the lemons. Capitalism is reserved for the winners.”
It’s a potent argument. In the name of stability, we are trying to douse the flaming mistakes of errant capitalism with tax dollars. But it can’t be fair to taxpayers or to poor people who are in much greater need of government assistance, if the wealth of the people whose arrogance and bad judgment caused the crisis is essentially left intact in order to promote “stability.”
For these and other reasons, it’s not too soon to ask the questions that Senator Cantwell is asking, not just about how we’re spending the money, but how we’re going to come out of this with an economic and regulatory system that is more transparent, accountable, and equitable.
–Tim Connor
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