Wall Street put a gun to the head of the politicians and said, Give us the money–right now–or take the blame for whatever follows. The audacity of Treasury Secretary Henry Paulson’s original bailout proposal was reflected in what it refused to say: no explanation of how the bailout would work, no demands on the bankers in exchange for the public’s money. Treasury’s summary of the plan included this chilling statement: “Section 8. Review. Decisions by the Secretary pursuant to the authority of this Act are nonreviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.” In other words, no lawsuits by aggrieved investors or taxpayers allowed. No complaints later from ignorant pols who didn’t know what they voted for. Take it or leave it, suckers.

Both political parties may submit to this extortion because bending over for Wall Street instruction, their usual posture, seems less risky than taking responsibility. Paulson and Federal Reserve chair Ben Bernanke exerted intimidating pressure because previous efforts to restore investor confidence had failed, as their slapdash interventions worsened the panic. And the Fed was running out of money. Nearly three-fifths of its $800 billion portfolio is now loaded with junk, the mortgage securities and other rotten assets it took off Wall Street balance sheets.

Despite its size, the gargantuan bailout is still designed for the narrow purpose of relieving the major banks and investment houses, in the hope that this will restore order to economic life. There are lots of reasons it will fail. Washington’s money might pull firms back from the brink, but that does not guarantee that banks will resume normal lending, much less capital investing. Likewise, global investors have been burned and may refuse to pump more capital into the wobbly house of American finance.

Secrecy and opacity are crucial to achieve Wall Street’s purposes and could allow Paulson to overpay his old pals for near-worthless assets, thus allowing them to recapitalize the damaged banks while telling the public and politicians the money will save the system. To achieve this, Wall Street needs to keep control of the process, whoever is elected president. Not everyone will be saved, of course, but high on the list of endangered nameplates is Goldman Sachs, Paulson’s old firm, and Morgan Stanley. These high-flying investment houses looked to be doomed by recent events, so the Fed quickly agreed to convert them into banks. Then Warren Buffett put up $5 billion to aid Goldman but smartly protected himself from loss. Politicians should tell Wall Street, “We want the same deal Buffett got.” Think of Paulson’s solution as Goldman Sachs socialism.

If Paulson’s gamble fails, the government might finally undertake forceful intervention rather than friendly solicitude for Wall Street. Washington should take literal control of the banking and finance sector and employ emergency powers to direct these private enterprises. Cut off from public assistance any bankers who do not wish to play. Then government can exercise temporary supervisory powers that force the banks to cooperate with recovery by sustaining lending and investment to the real economy. Order full stop to the many financial gimmicks and accounting illusions that led to inflated lending and falsified asset valuations. Unwind the complicated time bombs known as credit derivatives and shut down this line of business. Meanwhile, instead of throwing millions of homeowners and debtors out of their homes and into bankruptcy, hold them harmless temporarily so people can work out reasonable recovery terms. Finally, force-feed new life into the real economy with government spending on public projects and capital formation. How much spending? Rescuing America from irresponsible Wall Street is worth at least what it costs to save the bloodied bankers.

OTHER CONTRIBUTIONS TO THE FORUM

Doug Henwood Nomi Prins Ralph Nader Thea M. Lee Robert Pollin Thomas Ferguson and Robert Johnson James K. Galbraith and William K. Black The Rev. Jesse Jackson