"Trust Us"

I'm more than a little queasy about this bail-out and this reader sums up my feelings almost perfectly:

After nearly eight years, the phrase "trust us" no longer works.  Now we're presented with a historically unprecedented bailout proposal for the nation's financial institutions.  I have a jumble of differing reactions to this. First, for years  the Republicans have sold us a deregulation mantra and suggested that any form of regulation is "socialism." But anyone who's actually read Adam Smith knows that he and other philosophers of free markets made plain from the outset that the state needs to guard the integrity of the marketplace.  Smith says that there is a dark side to the entrepreneurial spirit that the state must guard against.  This is not a rejection of market economics--it's a protection of the market place against those who abuse the freedoms it offers.

Second, we are as usual placed in a position in which great pressure is brought to bear to quickly accept a deal which will reverberate for decades without close inspection.

We are again told that things are vastly complicated and we should trust Treasury and the Fed to do the right thing.  My trust reservoir is exhausted.  I actually respect Paulson, but I also believe he is "playing the hand he's been dealt," as he said.  This is not the way decisions should be taken that have long-term consequences for the nation's future.  If in fact all of this bubbled to the surface quickly, without being anticipated, then the folks at Treasury are incompetent.  However, I don't believe that for a second--I am convinced that in this case, again, the Bush Administration knew what was up and calculated that it could just muddle through until after the elections.  We should all be apprehensive about what is coming after election day.

Third, the administration's proposals continue a process of socializing loss and preserving profits and distributions, many of which were made with full knowledge of the pending losses. When management distributes illusory profits to insiders in full knowledge of a massive loss, this is called a fraudulent conveyance, and in equity proceedings such distributions are routinely recovered for the creditor mass. There should therefore be a careful scrutiny of distributions of profits and bonuses by failed firms.  The bailout we now see may mean effectively that taxpayer money is subsidizing the purchase of macmansions and Bentleys by investment managers who behaved irresponsibly.  How can that happen?  Only in the age of Bush.

Fourth, I really started steaming this morning reading the NYT article about the participation of foreign banks in the bailout. Granted that the US has an interest in protecting financial markets, but why should the US be bailing out German and UK firms?  At least this should be a burden shared with their own governments. This really needs to be subject to some probing questions. What's going on here?

(Photo: Hank Paulson by Jim Watson/AFP/Getty.)