The Mother of Bailouts
Let me be clear up front: I do not like this bailout.
Having said that something has to be done. We are in the grip of the worst financial crisis since the Great Depression. So action needed to be taken. The problem is that this plan seems so ad hoc and ill conceived that it smacks of desperation.
The latest from the New York Times is here: News Analysis – A Bailout Plan, but Will It All Work?
My position, which obviously will change as details leak out to the public, is that there seems to be no real downside in this plan for the shareholders of the banks being rescued. Whereas the taxpayers see virtually no upside. Economists call that moral hazard, and this plan appears to blow away any semblance of hazard. The message is clear: lose whatever you want, make your fortunes, and the public will bail you out on the downside. That’s ugly. It is truly awful public policy. And I don’t believe that Fed Chairman Bernanke wants to go down that route. After all he is the co-author of one of the most popular micro-economics textbooks, which most likely preaches loudly against the very actions he is now lobbying Congress to adopt.
The few details we know are that this bailout will cost us about $700 billion over the next few years. Compare that with the recently announced Federal Deficit of $407 billion. Those are horrific numbers. If anyone ever wanted to find facts with which to indict the Bush regime and its complete incompetence these figures are surely enough. The country is awash with debt. This catastrophe will hobble the Federal government for the next few years. The ramifications for growth, employment, interest rates and general public policy will reverberate for years. How, for instance, can we establish a public health care system when we are already running massive deficits which are now augmented by a virtually unknown, but potentially vast, further debt? Never in American history has the economy been so hopelessly mismanaged.
As the dust settles we have to come to a collective realization that we are living through an historic moment. An era is ending with a resounding implosion of market driven ideology. The entire Republican and free market economics edifice that has dominated public policy making for three decades and which was supposed to propel the economy to great and glorious heights is being exposed as a truly cataclysmic failure. Not only do unfettered and unregulated markets fail to deliver the goods, but they collapse under the weight of their own greed. So the very people who have had to watch as Wall Street bankers gorge on unseemly profits and bonuses, and have had to watch as income inequality balloons to 1920’s proportions, are now being called upon to bail out that self same rich and arrogant elite. The injustice is palpable. It is an insult to every hard working American who has not had the good fortune to participate at the trough.
Why? Lest as the market ‘self adjusts’ it takes us all down with it a la Great Depression.
Did no one in a position of power not foresee this. Did no one study the Great Depression? Well Bernanke is one of our greatest students of that huge failure. Perhaps he should have read his own books more carefully. Or more likely, the ideologically bankrupt Administration pushed back too hard early on, and only caved this last week as the sunami threatened to engulf their precious markets.
Meanwhile, let’s all hope that this bailout is restructured so that we, the people, can actually salvage something. And that those responsible feel the pain of the loss they are trying, right now, to foist on us.
