Bailout
TNG Stephanie asked the writers of this blog if one of us would write about the $700 billion bailout/rescue. Thinking I might be able to offer common man/non-academic insight, I said I would take a crack at it, but my attempts have only met with frustration. After hours of discussion with friends, I still don’t feel confident enough to have a strong opinion. After cramming my brain during the last week with every pro/con opinion on the bailout, I just feel overwhelmed. I’m still not sure what Congress should do. One side of the debate says don’t get tripped up on an imperfect bill—stop the hemorrhaging and worry about the rest later in order to prevent the loss of jobs, investments, and global image. The other side says this bill will do nothing for homeowners and maintain the “sustained orgy of excess and reckless behavior” that is our financial oligarchy.
While I don’t have answers, I am particularly curious about the reactions against the so-called “dumb” politicians (110 Republicans and 95 Democrats) who didn’t support this bill the first time. I'm stunned by the lack of discussion about their reasons for not supporting the bill (beyond the typical tired blame game crossfire from the political parties). Very few politicians or talking heads are discussing the ideas of people like Robert Johnson, former chief economist of the Senate Banking Committee, respected economist James K. Galbraith, or even the controversial Michael Moore, who has a thoughtful and straightforward set of 10 rules to turn around the financial crisis. None of them believe that this bailout is a good idea. There are many non-governmental economists who are stepping forward with lots of reasons why we should not be supporting this bailout. Where is the discussion?
The Congressional Black Caucus doesn't like the bill either, apparently—a majority of their members rejected it. While I can’t say that not supporting this bill is a good idea, I can understand why the CBC and so many congresspersons (conservative and liberal) who represent minority and working-class Americans aren’t lining up to support the bailout. Most of the blue collar poor don’t own stock or have much savings beyond social security, so they aren’t the ones feeling the pinch, beyond their gas bill. Yet.
Why would these Americans want to bail out the entity that sold them stink bomb loans and didn’t care if they could pay them back? Why would they care about a gilded class that has done nothing to offer them truly affordable housing, student loans, pharmaceuticals, or insurance? Why would they trust an official (Paulson, a poster child for the very system in trouble) from a (discredited) Bush administration who shows up on their tv one day and basically says give me 700 billion and let me do whatever I want with it? Why would they care about an upper class that is being crushed by the weight of their own greed?
The more I think about it, the more this situation invokes the disturbing theory laid out in Naomi Klein's book The Shock Doctrine, where Klein explains how governments (backed by the moneyed elites) have consistently pushed unpopular and often self-serving programs on to their populations during the aftermath of traumatic events (hurricanes, financial crises, political coups, invasions of soverign nations, people flying airplanes into buildings, etc.) when said populations are too shocked and fearful to think or react as they would in normal situations. This makes me suspect the many chicken littles that keep telling me about falling skies whenever I turn on the television news.
I'm not sure what we should do, but my gut tells me we all need to breathe deep and have more discussion about the different plans for dealing with this problem, even if it means slowing the rush to act.
6 comments:
/Agree with the general sense of bewilderment.
I don't have a whole lot of confidence that whatever they end up doing will necessarily be a very good idea. This is all happening at a very inopportune moment, when clear thinking on the best solution is likely to be muddied by election year posturings and concerns.
Thanx for the post Ben. For realz this shit is crazy. I mean, I'm pretty sure that whenever something/one needs $700 billion, yr in a no-win situation. I say we give them the $700 billion, but in Sacajawea dollars - that'll teach 'em!
It all reminds me of a conversation I once had with my literary theory professor about the rise in popularity of the conspiracy theory in modern times. With the aide of technology our society’s institutions have grown so complex so rapidly that no one individual can fully understand them or their workings. Yet we naturally look for and want to understand/explain the various phenomenon that govern our lives—see religion. Specifically the economy can be used as a prime example of this hyper-complexity, where flows of capital are exchanged in massive transactions, processed by vast networks of computers, and all happening on a level that is hard to fathom let along begin to even evaluate without using advanced mathematical models. This inevitably creates tensions and anxiety, which we’ve seen play out with this “crisis”. So many of the public comments have been about “back room meetings” and smoked filled rooms, where a select powerful few are seen pulling strings. I have a hard time giving the major players that much credit, and often feel they know little more how to “fix” our problem than the average person does. The conspiracy theory though is a safe harbor, a way of reducing the inherent complexity and uncertainties of our institutions into an understandable narrative/model.
This isn’t to say that corporations and the moneyed elite don’t exert undue and (I feel) often destructive influence over policy and markets, only that these problems are greater than can be easily or quickly addressed in any “bailout” let alone the three pages of legislation initially proposed by Paulson and the Bush Administration. What ails our economy isn’t something that can be fixed in a single bill or even several. I likewise don’t assume to have answers, but I feel that we’ve also been asking the wrong questions. Without first addressing some of the fundamental assumptions on the nature and role of our economy, I think it’s difficult to really make progress or draft legislation that will affect an outcome that improves our situation.
Let’s face it; the economy is integral to the health and future of our society, so much so that it can’t be treated as a separate self contained entity as it is so often addressed. This comment has already sprawled out a bit too long, but I think Emerson was right in proclaiming “Now these things are so in Nature. All things ascend, and the royal rule of economy is, that it should ascend also, or, whatever we do must always have a higher aim. Thus it is a maxim, that money is another kind of blood. Pecunia alter sanguis: or, the estate of a man is only a larger kind of body, and admits of regimen analogous to his bodily circulations… the merchant’s economy is a coarse symbol of the soul’s economy.”
The economy is too important to leave up to the economists.
Honestly, with the amount of money this country spends, $700 billion isn't that much money. And the bailout is necessary to protect Main St.
Put simply, Wall St. banks such as Lehman (while it was still around), Morgan Stanley, and Goldman Sachs create short term paper. S-T paper pretty much finances the entire corporate world, from Wal-Mart to P&G. If these investment banks didn't have the government buy all the bad debt on their books, these banks would disappear and no one would be left to create capital for companies.
In addition to all that, credit would tighten even further and homeowners and small businesses would really feel the pinch. So while it was irresponsible for Wall St. banks to create complex derivatives that hedged too far in the wrong direction, we've already seen the aftermath of what happens when they do fail and either bankrupt or get swallowed up by other firms.
Anonymous:
It's hard to trivialize $700 billion. That's a full fourth of our annual budget. We could fully fund our educational system, build vital and sustainable infrastructure, or simply pay down a ballooning national debt (3.1 trillion) with those funds.
Don't vomit out that protect Main St. line either. If Wall St. and our government was concerned with the well being of Joe-Six-Pack, then this market would have adjusted itself long ago. Just looking at the exploding gaps in wealth distribution we find indication of the priorities and movement of this current political-economic regime:
"The ratio of CEO pay to factory worker pay rose from 42:1 in 1960 to as high as 531:1 in 2000, at the height of the stock market bubble, when CEOs were cashing in big stock options."
There are long standing issues with our economy that need to be addressed. This "crisis" isn't only about market liquidity, it's just convenient that the liquidity freeze has reached a magnitude to affect the finances of the top 10% of this nation.
You wrote:
"If these investment banks didn't have the government buy all the bad debt on their books, these banks would disappear and no one would be left to create capital for companies."
For an individual that seems to have belief enough in the current economic status quo to bailout its dominant institutions, you seem to have little faith in the market at its foundation.
I thought the whole benefit of our free market economy was that it created adaptable and superior (to federal government) institutions, held to a higher degree of accountability--able to run our schools, healthcare, and social programs more effectively. If a corporation falls, don't others just step into the space it once held? Why all the doom and gloom?
Before you say it was government intervention in the markets that caused this crisis, remember that it was the markets that pushed for changes in governance.
My thought is that this instability has a greater historical context/significance than the immediate circumstances which have burdened it. Even the AP agrees that "not even $700 billion will be enough to spare the United States from more economic anguish if the government's proposed banking bailout pans out like similar desperation moves during the past two decades."
So, "put simply": the White House has been planning this bailout for months, why is it, that a dialog isn't opened up until the week before Congress was planning on heading out of session?
Wasn't this legislation too important for something like this?
Just a quick point of info... the US National Debt is over 10 trillion - way more than 3.1 trillion. And it's sad how nobody even talks about paying it down nowadays.
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