Overseas Think Tank for Indonesia

By Dr. Beni Bevly

As a new American resident who witnessed the glory of American economy under Bill Clinton’s administration, the downturn under George W. Bush’s administration, and how Bush’s administration tried to solve it with three-page proposal, I shook my head. Was I dreaming?

United States of America, once as a great country was like a bird flew freely and inspired the world, then since 9/11 it created an environment, as Thomas L. Friedman in Hot, Flat, and Crowded said where birds did not fly, now America itself is like a bird that is in a desert, thirsty and barely has energy to fly to seek water.

Now, I woke up from my dream. It is a fact that America is facing a great depression, even though less than a month ago John McCain said that America has strong economic foundation. In this situation what has been Bush’s administration doing? Will this affect you and me as regular American taxpayers? What can we do to protect ourselves?

Several days ago, Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke were asking that Congress pass a law giving Treasury broad powers to buy as much as $700 billion in troubled assets – primarily mortgage-backed securities that have seen their value plunge due to rising foreclosures and a prolonged slide in home values. Paulson said he put forward a brief, three-page proposal without details about how the program would be overseen for a reason (CNNMoney.com, September 23, 2008).

Of course this three-page proposal raised many questions from many parties and individuals, such as who will be entitled to get the taxpayers’ money, and on what basis? How was the $700 billion calculated? What criteria should be met to determine what the government will pay for “troubled assets”? Why cover all financial companies – not just those involved in bad mortgages – as well as foreign companies? Why should the hundreds of millions of Americans who did nothing wrong be required to pay $10,000 per family in this country? (Consumer Watchdog, September 24, 2008)

In short Bernanke argued that if the range of participants were too narrow, it would only be able to include failing institutions, for example, because of that it would not have a robust, competitive auction. He added, “The more participants we have, the more people who are involved in offering these assets, (then) we’ll have a competition.”

Bernanke and Paulson both believed that such a provision would limit the firms that would participate and undermine the effort. They also tried to convince the Congress that all the money that the government was going to spend by buying the assets would be recovered when the assets were eventually sold.

Still, their arguments were not strong enough to convince most parties and individuals, including Sen. Barack Obama. For this reason he outlined four principles in reacting to a three-page proposal that was worth $700 billion, i.e:

First, a ban on generous payouts for “irresponsible CEOs on Wall Street.” Obama warned: “There has been talk that some CEOs may refuse to cooperate with this plan if they have to forgo multimillion-dollar salaries. I cannot imagine a position more selfish and greedy at a time of national crisis. And I would like to speak directly to those CEOs right now: Do not make that mistake.”

Second, replacing Treasury Secretary Hank Paulson’s absolute authority over the bailout’s execution with a bipartisan independent board. Obama noted that Paulson signaled during testimony this morning that he may be open to the broadening idea.

Third, an investor stake for taxpayers. “The American people should share in the upside as Wall Street recovers,” Obama said, adding, “There are different ways to accomplish this.”

Fourth, assistance for people who are in danger of foreclosure. He outlined several possible ways to provide aid, including giving the government the authority to purchase mortgages directly, instead of the mortgage-backed securities that have cause the banking woes (Washington Post, September 23, 2008).

As taxpayers who do not involve directly in this decision-making process, what we expect and what can we do? Obviously, this decision will affect us directly in term of the increase of interest rates that relate to our credit card, and other loans, plus other intangible costs.

If we agree with the spirit of this bailout proposal, we want this proposal to help us – who live at the Main Street – to solve our main problems such as preventing losing but creating more jobs, keeping daily living cost low including interest rates from credit cards and other loans, decreasing renting fees, monthly mortgages and foreclosures.

We have to demand that the interest rate is not more than 5.25 percent since the Federal Reserves Discount Window lending rate is presently 2.25 percent.

Overall, with all the voices we have, I believe we will be able to ask government to set up strict oversight and new regulatory standards for the financial services industry. This includes transparency and new rules prohibiting the riskiest practices. By that way, this crisis will never happen again to our children and us.

One of the actions we can take is to send message to the Washington D.C. through Senators who represent us. Consumer Watchdog made it easy by creating a letter for us though its website. All you need to do is to click www.consumerwatchdog.org and fill out the form.

At the end hopefully, the bird will be able to escape from desert, find clear water to drink, then fly freely to inspire the world again.

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Dr. Beni Bevly is the founder of Overseas Think Tank for Indonesia and the author “Managing For Profit Organizations in Flatter World.”