Recently, I received a mail forward which was an example of the typical reaction to the Wall Street mess. Outrage at the bailout, calls to ‘tax the rich’ and ‘reduce CEO pay’ and so on...
Except this was written by Michael Moore (http://www.michaelmoore.com/words/message/index.php?messageDate=2008-10-01) , and I used to think he was a cool guy known for his docu movies...
Anyways, here’s how it starts:
The richest 400 Americans -- that's right, just four hundred people -- own MORE than the bottom 150 million Americans combined. 400 rich Americans have got more stashed away than half the entire country! Their combined net worth is $1.6 trillion. During the eight years of the Bush Administration, their wealth has increased by nearly $700 billion -- the same amount that they are now demanding we give to them for the "bailout." Why don't they just spend the money they made under Bush to bail themselves out? They'd still have nearly a trillion dollars left over to spread amongst themselves!
Interesting start. Exploit the emotion called jealousy and capture the reader’s attention. Except that, what is the crime of these 400 Americans, except that they happenned to be successful and made some money. None of the people in the top 20 are connected to Wall Street (except maybe Buffett, but we know he did not do sub prime). I am too impatient to go through the list of the entire 400 names to find out Wall St connections. If you, as a taxpayer, are outraged at ‘paying for someone else’s follies’, then I fail to see the logic behind asking someone else to do it, just because they happen to earn more.
Then, Moore goes on to propose his version of a bail out plan...
1. APPOINT A SPECIAL PROSECUTOR TO CRIMINALLY INDICT ANYONE ON WALL STREET WHO KNOWINGLY CONTRIBUTED TO THIS COLLAPSE.
How about indicting people who had no income and no assets, but wanted a house? Oh, but they are poor, honest Americans who got caught up in the asset bubble. And we are on their side.
2. THE RICH MUST PAY FOR THEIR OWN BAILOUT. They may have to live in 5 houses instead of 7. They may have to drive 9 cars instead of 13. The chef for their mini-terriers may have to be reassigned.
a) Every couple who makes over a million dollars a year and every single taxpayer who makes over $500,000 a year will pay a 10% surcharge tax for five years.
b) Like nearly every other democracy, charge a 0.25% tax on every stock transaction. This will raise more than $200 billion in a year.
c) Because every stockholder is a patriotic American, stockholders will forgo receiving a dividend check for one quarter and instead this money will go the treasury to help pay for the bailout.
d) 25% of major U.S. corporations currently pay NO federal income tax. Federal corporate tax revenues currently amount to 1.7% of the GDP compared to 5% in the 1950s. If we raise the corporate income tax back to the level of the 1950s, that gives us an extra $500 billion.
I don’t know where he got his figures from, but I am assuming they are right. Now, the rich people and the corporations are usually smarter than Mr. Moore, and they’ll simply find a way to avoid the surcharge. Move their incomes to tax havens at the worst case.
Now the stock transaction cost: Simple economics – increase in trading costs means lower volumes traded, which means inefficient price discovery which means more opportunity for your much hated Wall St. people to ‘influence’ prices.
And why should only the stockholder prove his patriotism? Why not the salary earner, interest earner? If wages and interest are to be paid before stockholders in good times and in liquidation, isn’t it fair that those very parties contribute to the bail out before the stock holder does?
3. BAIL OUT THE PEOPLE LOSING THEIR HOMES, NOT THE PEOPLE WHO WILL BUILD AN EIGHTH HOME.
There are 1.3 million homes in foreclosure right now. That is what is at the heart of this problem. So instead of giving the money to the banks as a gift, pay down each of these mortgages by $100,000. Force the banks to renegotiate the mortgage so the homeowner can pay on its current value.
And let's set the record straight. People who have defaulted on their mortgages are not "bad risks." They are our fellow Americans (emphasis mine), and all they wanted was what we all want and most of us still get: a home to call their own.
Ever heard of moral hazard? I am assuming you have, since you are protesting against a bail out to greedy bankers. But, what is the message you are sending out now? People, when the next bubble comes along, do go out and borrow more than you can. Then default. After all, you are my honest, hardworking fellow American. You are not at fault. Let the greedy banker take the hit.
What next? Our honest fellow American wants a car. No problem, borrow and default. Want a college degree. Borrow and default. After all, should the bank’s profit come before our fellow American’s education?
4. IF YOUR BANK OR COMPANY GETS ANY OF OUR MONEY IN A "BAILOUT," THEN WE OWN YOU. Sorry, that's how it's done. If the bank gives me money so I can buy a house, the bank "owns" that house until I pay it all back -- with interest. Same deal for Wall Street. Whatever money you need to stay afloat, if our government considers you a safe risk -- and necessary for the good of the country -- then you can get a loan, but we will own you. If you default, we will sell you. This is how the Swedish government did it and it worked.
Ok, I can’t really find fault with this. After all, the Swedes proved how it works. But, owning a company is nothing but indirectly owning the assets of the company. If you default, the bank doesn’t come and declare, “Thou shall be my slave for the next twenty years”. It just takes the house. So, the US Treasury can just take the mortgage assets and be done with it, instead of owning the whole goddamn company. Same to Same. If you can’t value one portion of the bank’s ‘assets’, how are you going to value the whole bank?
5. ALL REGULATIONS MUST BE RESTORED. THE REAGAN REVOLUTION IS DEAD.
And the US should add two letters to its name and become USSR?
6. IF IT'S TOO BIG TO FAIL, THEN THAT MEANS IT'S TOO BIG TO EXIST.
How large is acceptable for you? Should Wal-mart have only two stores? Twenty? Two hundred? What if they can have more stores and apply supply chain management on the bulk and reduce costs so that goods are cheaper for our fellow American? No, they are getting too big. Slice them up!
Maybe it is time for a new Moore's Law: "The size of the companies will halve and the cost of the goods double every two years"
... "If you can't explain it in two sentences, you shouldn't be taking anyone's money."
I wholly support this man. We’ll ask all our clients to give us a two line project report: “Plan to set up power plant. Will burn coal, generate power, sell and make money” and voila, we’ll give him the loan he wants. Makes my job easier.
7. NO EXECUTIVE SHOULD BE PAID MORE THAN 40 TIMES THEIR AVERAGE EMPLOYEE, AND NO EXECUTIVE SHOULD RECEIVE ANY KIND OF "PARACHUTE" OTHER THAN THE VERY GENEROUS SALARY HE OR SHE MADE WHILE WORKING FOR THE COMPANY.
Psst... did our PM get in touch with you on his visit to the US? If the owners of the company do not have a problem with how much the management is making, who are we to question them?
8. STRENGTHEN THE FDIC AND MAKE IT A MODEL FOR PROTECTING NOT ONLY PEOPLE'S SAVINGS, BUT ALSO THEIR PENSIONS AND THEIR HOMES.
I’ll agree with one part of the argument. Give people the option to invest their pensions in safe treasury bonds which earn a rate just better than inflation. And another option to invest some in equity, which may give higher returns, but can be wiped out too. Now, trust the average honest fellow American to choose his future wisely. After all, if he is greedy enough to choose equity and exotic derivatives, FDIC has no business protecting it. And if he is willing to gamble on his future, you and I and the FDIC have no business in trying to stop him.
9. EVERYBODY NEEDS TO TAKE A DEEP BREATH, CALM DOWN, AND NOT LET FEAR RULE THE DAY.
Ha, one sensible point. Sad, it took eight nonsensical points to come to this. And just to nitpick, the sky might fall. So, I would rather watch TV and discuss how I can find a shelter. Plus, if no one is watching TV or reading news, who will support your plan, Mike?
10. CREATE A NATIONAL BANK, A "PEOPLE'S BANK."
If we really are itching to print up a trillion dollars, instead of giving it to a few rich people, why don't we give it to ourselves? Now that we own Freddie and Fannie, why not set up a people's bank? One that can provide low-interest loans for all sorts of people who want to own a home, start a small business, go to school, come up with the cure for cancer or create the next great invention. And now that we own AIG, the country's largest insurance company, let's take the next step and provide health insurance for everyone. Medicare for all. It will save us so much money in the long run. And we won't be 12th on the life expectancy list. We'll be able to have a longer life, enjoying our government-protected pension, and living to see the day when the corporate criminals who caused so much misery are let out of prison so that we can help reacclimate them to civilian life -- a life with one nice home and a gas-free car that was invented with help from the People's Bank.
And where will this ‘low-interest’ loans be funded from? From the tax of the honest fellow American? And this is permanent funding, not a one time bail-out? You are too good man. If I was in US and you ran for office, I’ll be voting for you.
PS: Sorry for the looooong post... half of it was his lines, so you can blame him partly. And of cousre, I havent pasted the entire plan here. You can read it from the reference given at the top.
PPS: I am not very good at economics. Else, I could have ripped him apart better. Sigh.