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Donor Heaven: Praying for a Positive Sum Game

The Geithner plan is out and has all the spin of "creative" new ways to manage private and public joint ventures. It is clearly the case that the distributional economics of it is lousy for the taxpayer. Granting subsidized loans backed by taxpayers to artificially inflate toxic asset prices to subsidize the Too Big Too Resolve Financial Institutions is what Rahm Emanuel might call "donor heaven." The alternative of restructuring banks and forcing the debt holders to convert their bonds, in part, to equity (rather than force the taxpayer into capitalize these firms) has been dismissed, and PIMCO is smiling. The stockholders and bondholders of large banks are protected. They talk systemic safety, but their eyes say profit, or avoided loss.

It remains to be seen whether this plan will generate the volume of buying that will be required to repair the system. Though the ultimate outcome of this bailout will be hundreds of billions more than it needs to be, as a result of the dominant power of financial institutions in American politics, we all must hope that the massive subsidies of them will be effective in unlocking credit flows and a revival of the macro economy. Even if we massively overpay because our "experts" think that all major donors are too frightening to resolve (TFTR), we should hope for positive results that put this tragic episode behind us.

So as citizens, we can now look forward to return to a life of being scolded by the pillars of finance for vilifying the people (the pillars themselves) who cost us a couple of trillion dollars, admit no wrongdoing, and escape any meaningful consequences. They can now return to chiding us about not joining the team in a crisis equivalent to Pearl Harbor that has the overtones of being anti-patriotic if you do not acquiesce to letting them feel good about getting subsidies from the taxpayers because they are, after all, "smart money." Maybe they are right. That appears to be the American way.

America just got its lunch eaten by finance. The question now is what to do as the program unfolds. Progressive organizations that are little more than rent-a-sales force for the least-worst major corporate candidates, denial of the overpowering role of campaign finance, and media that postures with faux rage at the bonuses of AIG (which are disgusting), but raise little or no objection to Goldman Sachs stockholders getting $12.9 billion from taxpayers via AIG all contributed. Something has got to change. Or future generations will be buried under the weight of the debt our weakness foists upon them, and they will be rightfully ashamed of us for letting it happen.

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Robert Johnson

Robert Johnson