Naomi Klein: The Borderline Illegal Deals Behind the $700 Billion Bailout
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Unfortunately for the market, voters have just voted for change. They voted for a candidate who really turned the election into a referendum on this economic policy of rampant deregulation. So you've really got a problem here. How do you reconcile the market's desire for status quo with the voters' demand for real change? There is no way to do that without a few bumps along the way. And I'm quite concerned that what we're seeing from Obama's team is an accepting of this logic that they need to give the market what it wants, which is continuity, smooth transition, which is really just code for more of the same. And when you hear names like Larry Summers being bandied about for Treasury Secretary, that's feeding the market exactly what it wants, which is more of the same.
Goodman: I wanted to go more to these -- what you're calling "borderline criminal" deals, the Washington Post revealing as part of the bailout, lawmakers changed Tax Code Section 382, which limits the kinds of tax shelters companies can use to -- during corporate mergers, created to stop companies who avoid paying taxes by acquiring shell companies valued by the losses on their stocks. And then, going on in the piece, it says congressional aides admitted lawmakers agreed to keep the change hidden to avoid public outrage. Staffers with Senate Finance Committee chair, Max Baucus, a Democrat, reportedly asked that an administration briefing on the tax code change be kept secret. One congressional aide said, "We're all nervous about saying this was illegal because of our fears about the marketplace. To the extent we want to try to publicly stop this, we're going to be gumming up some important deals."
Klein: Right. I mean, this is -- that's an incredible statement, Amy, because really what they're saying is, we can't afford to enforce the law, because there is an economic crisis, that somehow, because there's an economic prices, legality is a luxury that Congress can't afford. That is a very scary statement. But this is what I mean by this logic that you have to -- you know, the market, particularly a bear market, has the temperament of an ill-tempered two-year-old. I mean, it throws temper tantrums whenever it doesn't get what it wants, whenever it is frightened. So it is really dangerous to pander to the tastes of the market in this period. It needs a little bit of tough love. That's what people have voted for. But there will be a temper tantrum if there is a clear message that the law is going to be followed.
So, we find out that there has been this backdoor, illegal tax break handed over to the banks. And, by the way, Amy, this is an example, a classic example, of what I call disaster capitalism or the shock doctrine -- right? -- where the banks had been pushing for this tax break for many, many years, they weren't able to get it through during normal circumstances, but in a crisis they push it through the back door when everybody is focused on -- well, at the point that they pushed this through, which was September 30th, this was the worst of the economic crisis and people were focused on the collapse of Lehman, and they were focused on the fact that they couldn't get the bailout legislation through. So nobody even noticed this until it was too late.
And so, this is what I mean by the strategy of the Bush administration, is now they are saying to Congress, "We dare you to stand in the way of these bank mergers, because if you do that" -- because the tax break that they handed out is what encouraged a wave of bank mergers. And I really do think it is worth pausing to question this idea that what Treasury should be doing at this point is encouraging very large bank mergers, because one of the other problems that, you know, is at the root of this crisis, and certainly at the root of this unprecedented bailout, is that you have so many banks that are considered too big to fail, right? So why is it that we are not questioning this solution, the so-called solution to the crisis, which is creating even bigger banks, banks that will, once again, be too big to fail?