IPS Statement on the Congressional Bailout of Wall Street

Congress needs to address the bailout’s unfinished agenda and fix our broken financial system.

October 3, 2008
Sarah Anderson, John Cavanagh, Chuck Collins, Karen Dolan, Sam Pizzigati

Over the past two weeks we have witnessed a remarkable outpouring of public outrage around the bailout bill. Now that the U.S. House of Representatives has just joined the Senate in approving this legislation, we at the Institute for Policy Studies (IPS) look forward to working with a wide range of groups to channel this energy into the enormous “unfinished agenda” that the bill ignored.

Four key points about the bill and this strategic moment:

1. The Unfinished Agenda: This bill doesn’t do five fundamental things that the American public desperately needs, and we commit to pursuing this unfinished business in the months ahead (see IPS’ Sensible Plan for details):
a. Create a stimulus for Main Street that addresses the recession in the real economy.
b. Establish a plan to ensure that the Wall Street speculators pay for the bailout.
c. Enact government regulation to shut down the casino — and rein in the unregulated financial sector of hedge funds, derivatives and other complex financial instruments.
d. Establish effective limits on all CEO pay (not just severance pay) and prohibitions on profiteering from the bailout.
e. Address the needs of poor homeowners who have lost or are facing the likely loss of their homes.

2. What is and isn’t in the bailout bill: Advocates for the bailout legislation have been making grand — and often misleading — claims on what this bailout does. One example: the claim that the bailout actually sets strict limits on CEO compensation. The bailout does include a ban on golden parachutes. But the legislation does not set clear restrictions on other forms of compensation. The bill’s key executive pay provision merely directs Treasury Secretary Henry Paulson to prevent “incentives” that encourage executives “to take unnecessary and excessive risks that threaten the value of the financial institution.” In other words, a bailed-out bank would be perfectly free to funnel $10 million into its CEO’s pockets — unless Paulson decides that reward poses an excessive risk to the institution. For more, see this detailed critique.

3. Will this bill solve the credit crunch?: Thousands of articles have been written on whether this current bill will actually help stabilize markets and free up credit for both Wall Street and Main Street. We hope that it does. But if it doesn’t, other excellent plans out there by Nobel Prize economists like Joe Stiglitz and financiers like George Soros would likely do the job a lot better. We will put these on the table.

4. The birth of a new grassroots movement: This has been a wrenching debate, but we’re heartened by the birth of a new grassroots movement that opposed a bailout of Wall Street without economic steps to help Main Street. These groups are demanding relief for poor homeowners facing foreclosure. They’re laying out how $700 billion could be spent to rebuild this nation’s infrastructure with green jobs. They’re demanding that the Wall Streeters who created this mess be the ones who pay for it. They’re demanding that CEOs not be rewarded for their horrible mistakes. Together, we can make these issues top priorities in the next Congress. We need to fix the American economy for ordinary people.

We call on Congress to move forward forcefully and swiftly to ensure the Unfinished Agenda gets finished. We urge that they hold a series of hearings on the issues laid out in our Sensible Plan during a lame-duck session. We urge Congressional action to immediately implement our proposed measures to fix our broken financial system, protect average homeowners, and ensure that those who recklessly brought us into this crisis be the ones to pay to fix it.

Contacts:

John Cavanagh, IPS Director, jcavanagh@igc.org, 202.234.9382 x 224
Karen Dolan, IPS Cities for Progress Director, kdolan@igc.org, 202.234.9382 x 228
Chuck Collins, IPS Senior Fellow, chuckcollins7@mac.com, 617.308.4433
Sam Pizzigati, IPS Associate Fellow, editor@toomuchonline.org, 301.933.2710
Sarah Anderson, IPS Global Economy Project Director and co-author, 15 annual studies of executive compensation; saraha@igc.org, tel: 202.234.9382 x 227

Sarah Anderson directs the Global Economy project of the Institute for Policy Studies and is a member of the New Economy Working Group. John Cavanagh is the director of the Institute for Policy Studies, a member of the New Economy Working Group, and co-author of Development Redefined: How the Market Met its Match (Paradigm, 2008). Chuck Collins is a senior scholar at the Institute for Policy Studies, where he directs the program on Inequality and the Common Good. Karen Dolan is a fellow at the Institute for Policy Studies, where she directs the Institute's Cities for Progress project. Sam Pizzigati is an associate fellow at the Institute for Policy Studies and editor of Too Much, an online newsletter on excess and inequality.

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