The Paulson Plan
The Rise Of The American Oligarch Class
By Robert Wenzel
-- - The word oligarchy dates back at least to the time of
Aristotle and comes from the Greek words for "few" (ὀλίγον
olígon) and "rule" (ἄρχω arkho). An oligarchy is generally
considered any form of government where a small elite segment of
society, be they from royalty, wealth, family or military, rule.
The most current day popular meaning associates an oligarch with
an extremely wealthy person who acquires his wealth, or
increases it significantly, by incorporating the use of
government influence. Oligarchs are not the only ones who become
rich, but their success and secretive influence over governments
put them into a separate class.
A recent example of a major grab of power and wealth in this
type of oligarch fashion comes from the period of the collapse
of the Soviet Union. In the confusion during the collapse, and
the rise of Boris Yeltsin as president of Russia, the oligarchs
made their move. With relatives or close associates as
government officials, sometimes even government officials
themselves, they achieved vast wealth by acquiring state assets
very cheaply during the so-called "privatization" process
controlled by the Yeltsin government.
The current $700 billion Paulson bailout plan has brought to the
forefront a new class of what must be called American Oligarchs
and oligarch wannabes. Some may have originally earned their
wealth by supplying consumers with desired goods, but at some
point they crossed over to the dark side to use government as a
vehicle to take from the poor and the middle class to give to
themselves. Others, never produced an honest product and have
been career long parasites on the working classes.
It is instructive that outside of this small group of oligarchs
and wannabe oligarchs, few appear to have been in favor of the
Paulson "bailout". (Note: The use of the word "bailout" to
describe the Paulson Plan is a misnomer, see my column:
THE BIG LIE: The Supposed Paulson 'Bailout' Plan).
letter circulated and signed by many academic economists was
sent to Congressional leaders objecting to the plan. The
Austrian economists, who are the only ones who understand the
business cycle, as would be expected also objected to the plan
Rockwell: Stop the Bailout and
Murphy: The Government Is Not Promoting Stability ).
Even some bankers
U.S. Treasury Secretary Henry Paulson's proposed $700
billion bank rescue aims to help ``poorly run'' companies and
the primary beneficiaries would be Goldman Sachs Group Inc. and
Morgan Stanley, said BB&T Corp. Chief Executive Officer John
Allison in a critique of the plan.
Treasury ``is totally dominated by Wall Street investment
bankers'' and ``cannot be relied on to objectively assess'' the
impact of government policy on the financial industry, Allison
wrote in a Sept. 23 letter to Congress...
Allison, 60, said Congress should ``hear from well-run financial
institutions'' as lawmakers consider the plan, which seeks to
ease the credit crunch by buying troubled mortgage- related
assets. Under Allison, Winston-Salem, North Carolina- based BB&T
avoided the subprime mortgage market, whose collapse led to the
credit crisis. BB&T has risen 26 percent this year, the best
showing in the 24-company KBW Bank Index.
From the right, Newt Gingrich has
called the plan "stupid." From the left, Paul Krugman
opposed the plan, calling it "Cash for trash."
Most noteworthy is the fact that the notoriously pro-Bush FOX
television network carried this
There is scant public support for President Bush's $700
billion federal rescue plan for the U.S. financial industry and
little expectation it would solve the crisis that has roiled the
markets and hobbled some of the country's largest investment
firms, according to a poll released Friday.
Just 30 percent of Americans say they support Bush's
package, according to an Associated Press-Knowledge Networks
poll released as White House and congressional leaders struggled
to rescue the plan after House Republicans rebelled against it.
Despite the president's pleas that the package is urgently
needed to prevent an economic meltdown, 45 percent say they
oppose Bush's proposal while 25 percent said they are undecided.
Yet, despite the extremely limited support for the plan, the
Oligarchs prevailed and Paulson's Plan will become law. Indeed,
the Oligarchs were out in full force to support the legislation.
As I have pointed out before, Paulson with his Goldman Sachs
connections must be considered an oligarch, but there are
Billionaire David Rubenstein, co-founder of the politically
connected Carlyle Group, has come out in favor of Paulson's
told CNBC that he hopes Congress will move quickly to
approve the rescue of the U.S. financial system.
Carlyle Group almost has too many ways to benifit from Paulson's
Plan to count. They ran a mortgage securities firm that went
under. Those securities will be coming up for sale under a
reorganization, just in time for purchase by the Treasury.
The Federal Reserve has changed regulations which will allow
them to buy larger stakes in bank stocks. And Rubenstein wants
to buy some of the paper the Treasury acquires. "Private equity
can help by buying these assets," he told CNBC. "Private equity
can be among the most significant buyers of assets."
Billionaire Warren Buffett is in favor of the plan, and he just
bought, through Berkshire Hathaway, a $5 billion stake in
Goldman Sachs. Goldman Sachs just received approval from the Fed
to become a bank holding company, so that they can buy up
troubled banks (And then sell the troubled mortgages of the
banks to the Treasury?). Buffett called Paulson's plan
"absolutely necessary'' and said that "I am betting on the
Congress doing the right thing for the American public and
passing this bill,''
Billionaire Wilbur Ross , through a firm controlled by Ross,
bid $435 million last September to buy the service unit of
American Home Mortgage, which collects payments from homeowners.
He is in favor of Paulson's Plan and
penned a column published at the New York Post to
say so, "...we need this passed, and passed quickly...,"wrote
There are likely other oligarchs who maintain a low profile and
keep their names out of the headlines, and there are oligarch
wannabes like former New York City Mayor Rudy Giuliani .
Giuliani has put out a
press release advising that his firm has formed a "task
force" to "guide financial institutions, private investment
funds, institutional investors and other market participants
through the legislative, regulatory and enforcement challenges
posed by the" Paulson Plan.
Clearly, the new oligarchs have arrived in America. It will mean
a lower standard of living for the rest of us as it is clear by
the Paulson Plan that they are not afraid to think big when
grabbing money from the populous at large. Further, they have
the political skill and influence to get the legislation passed
that will benefit themselves even when there is virtually
non-existent popular support. Be scared, very scared. The new
American Oligarchs now rule financial America and there is no
such thing as enough with them. They will be back for another
big bite from our wallets and income streams, all too soon.
Update: Word has reached me (HTrpm)
snuck into Paulson's plan are changes that will make it
easier for the Fed to inflate the money supply. So is the play
for the Oligarchs to grab the banks, the assets and the
mortgages and then inflate the money supply boosting the value
of all these assets by trillions, while the rest of us simply
get to deal with the price inflation as higher prices at the
grocery store, the gas pump and everywhere else?
Robert Wenzel is an
economic consultant and Editor & Publisher of
EconomicPolicyJournal.com. He can be reached at
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