STOP TREATING WALL STREETERS LIKE VILLAINS AND RESOLVE THIS CRISIS
October 2, 2008
Maybe it's a good thing the "consensus" rescue plan failed on Monday. That gives Congress a chance to pass a plan that helps resolve the current crisis rather than just demonizing Wall Street, says Bob McTeer, former president of the Federal Reserve Bank of Dallas and a distinguished fellow at the National Center for Policy Analysis.
The numerous add-ons to the Treasury bailout plan to protect the taxpayer were not only unnecessary, but harmful because they were punitive and made participation in the program less attractive for holders of illiquid assets. In fact, all the focus on C.E.O. salary caps, golden parachutes, warrants and so forth, implied that the holders of illiquid mortgage-backed securities were the villains in this drama rather than victims. They didn't package the securities, or sell them; they bought them as an investment. Negative Congressional rhetoric on these punitive taxpayer protections contributed to the feeling in the public that money was being given to the undeserving, says McTeer.
- While it didn't play a decisive role, the government had encouraged the purchase of mortgage-backed securities by giving banks C.R.A. (Community Reinvestment Act) credit for securities that contained mortgages made in certain ZIP codes; those that complied with Congressional wishes in that regard are now being threatened by the same Congress.
- Plus, all the speechifying about Main Street bailing out Wall Street, and about teaching Wall Street a lesson, surely contributed to the widespread misunderstanding of the purpose behind the rescue package, a misunderstanding that was the ultimate cause of its defeat.
According to McTeer, every "ordinary American" he talked to misunderstood the plan and hated it. They viewed it as using their tax dollars to bail out rich corrupt Wall Street types. Despite repetition over and over on TV and in the press that the bailout did not involve ordinary government expenditures but involved a purchase of assets that would be resold, most likely at a profit, that message never sank in. The legislators faced almost unanimous negative feedback from their constituents.
Source: Bob McTeer, "Stop Treating Wall Streeters Like Villains and Resolve This Crisis," New York Times, October 1, 2008.
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