Krugman called it: 'Heads they win, tails we lose'
Take the money and run the banks — after the bankers ran them into the ground. That's the tragicomic second act of the Great '08 Bailout.
As newly crowned Nobel Prize winner Paul Krugman put it nearly a year ago in one of his many prescient columns, "Heads they win, tails we lose."
The context of Krugman's comments was, and is, right on the money: On November 23, 2007, he wrote in his New York Times op-ed column, under the head "Banks Gone Wild":
And now Wall Street executives' poor decisions have earned its biggest banks $125 billion in cash money from U.S. taxpayers, the Treasury announces.
The Washington Post's Binyamin Appelbaum breaks it down in his front-pager this morning, "Treasury Invokes Patriotism In Pitch to Bank Executives":
Yes, Hank Paulson's crew had to pressure the banks to take the money, because the banks didn't like the terms.
The banks just wanted the government's money — without the government's interference. Miraculously, the government insisted on taking equity stakes.
But what are the banks complaining about? The government is reportedly getting preferred stock, which, as the Wall Street Journal notes, typically doesn't come with voting rights.
And now the taxpayers — without voting rights — will be directly shelling out part of the outrageous executive pay in all these institutions. The bailout plan calls only for "appropriate standards for executive compensation."
What's "appropriate" is not detailed, as the Washington Post, among others, points out. And this comes despite the Democrats' supposedly having control of Congress. As the Wall Street Journal says:
It's not as if there wasn't evidence of profligate pay. Bloomberg's Christine Harper and Ian Katz pointed out just this past March 7 when reckless Wall Street execs had already jumped the tracks on their way to a big crash:
And now Paulson, Goldman's ex-CEO, is handing over millions in cash to his old firm. There's no plan to take back those unjustifiable bonuses to help defray the cost of the bailout.
Ordinarily, you'd say that the big banks now owe their souls to the company store. But most of these institutions — including Goldman Sachs — have been deep into predatory subprime lending since the Clinton administration's repeal of the Depression I-era Glass-Steagall Act.
So it's unlikely that they owe anything.
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