By now you've heard that the massive bailout bill as developed in the House has failed, and the recriminations and accusations are flying. Along with Earl Blumenauer, Peter DeFazio in OR-4 voted no, believing the bill was still too tilted in favor of rescuing Wall Street without adequate protections for those on Main Street. DeFazio makes a statement via audio here {mp3}, and also gave a press release that not only explains his no vote, but immediately moves forward with new suggestions (including the same suggestion he had last week, which was ignored by the rush-to-deal House leadership: transfer taxes on stock purchases).
"Today, Congress stood up to Wall Street, the President, and Congressional leaders. I don't believe we should borrow $700 billion in the name of the American taxpayers to throw money at Wall Street's bad debts and cross our fingers and hope it will work," DeFazio said. "If Wall Street needs a cash infusion, it should be paid for by Wall Street. We need something more targeted to average taxpayers."
"We need to go back to the drawing board and craft a plan which does not leave the tax payers holding the bill," DeFazio said. "Wall Street should pay to bailout itself, not hard working Americans who are already struggling to make ends meet. I voted against the Bush Administration's cowboy capitalism, markets know best, deregulation at all cost policies. And, we've just witnessed the stunning failure of those policies. The American public didn't create this problem, and they shouldn't be stuck with the tab. The bill lies at the feet of those who willfully, wantonly, and irresponsibly created this mess."
DeFazio has put forth an alternative plan to make Wall Street pay for its own bailout. He proposed a minimal securities transfer tax of ΒΌ of one percent. A securities transfer tax would have a negligible impact on the average investor and provide a disincentive to high volume, speculative short-term traders. Similar tax proposals have been supported by many esteemed economists such as Larry Summers, John Maynard Keynes and Nobel prize winners Joseph Stiglitz and James Tobin. There is considerable precedent for this. The United States had a similar tax from 1914 to 1966. In 1932, Congress more than doubled that tax to help pay for recovery programs during the Great Depression. It would not put U.S. markets at a competitive disadvantage; the UK has a financial transaction tax of 0.5 percent as do many other exchanges.
Alternative Plans:
DeFazio, along with several noted economists who opposed the Paulson bailout, believe there are other, less expensive options.
William Isaac, the former chairman of the Federal Deposit Insurance Corp argues "The banks do not need taxpayers to carry their loans. They need proper accounting and regulatory policies that will give them time to work through their problems." Isaac has proposed a "net worth certificate" program modeled on what Congress enacted in the 1980s to resolve the savings and loan crisis. The program would require no subsidy and no cash outlay.
James Galbraith has proposed that we eliminate the $100,000 cap on federal deposit insurance which would prevent bank runs and re-establish liquidity in the financial markets. He also proposes a National Infrastructure Bank, making bond revenue available in a revolving fund for capital improvements and creating jobs.
Many economists have argued that unfair and abusive mortgage loans should be renegotiated to help distressed home owners save their homes. This would be astronomically cheaper and more effective in resolving this crisis without burdening the taxpayer. Helping working Americans stay in their homes would ultimately increase the value of Wall Street's depreciated mortgage backed assets. This plan would let the benefits of any bailout, paid for by taxpayers, trickle up to the banks and Wall Street, rather than hope the benefits trickle down.
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