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Bailout blues: Kuttner and Foster in the LA Times
In today's LA times, ( http://www.latimes.com/news/opinion/commentary/la-oew-kuttner-foster29-2008sep29,0,5647742.story ), two economists express their view on the current bailout's failure. One, Robert Kuttner, suggests a Roosevelt-style mortgage purchase/refinance model, while J. D. Foster from the Heritage Foundation waves off into the distance and says it's really all about Social-Security-and-Medicare (I'm not kidding).
The Times only allows 650 character comments -- barely enough to warm up: here's a loger response.
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I'm scarcely convinced by J. D. Foster's transparent attempt to shift the bogeyman and the blame to the United States' relatively modest social insurance plans. To be sure, Medicare costs are a genuine problem, but they exist in an entirely different time-frame than the current financial crisis, which is only very loosely connected to the United States' (and the individual states') fiscal problems -- most of which follow from the irresponsible Bush tax cuts.
Moreover, I find it simply offensive that Mr. Foster treats individual borrowers as equals to the investment banks and mortgage firms that have leveraged us into the current financial crisis. In fact, I have a responsible mortgage, which I have never been late paying. I guess that exempts me from Mr. Foster's disdain -- but it does absolutely nothing to shield me from the madness of irresponsible lending that triggered the current financial crisis.
Moreover, while mortgages and bad real estate lending are an important component in setting off the crisis, they are dwarfed by the collapse of the huge derivatives market, which itself has almost nothing to do with mortgage lending, and which was going to crash inevitably anyway -- if not over mortgages, then over interest rate hedges, or commodity hedges, or some other even more exotic leveraging bet that, in the end, had to go bad.
I have more confidence in Kuttner's plan, though here too, we need to acknowledge that the US government of today is no longer the US government that Franklin Roosevelt led after 1932. As we have seen in department after department during the Bush years, rot and corruption and inside dealing have become the norm in too much of the Federal government (and not just under Republican administrations, although most obviously under them). Is the Treasury (a branch of Goldman Sachs) and the other departments really able to act in the public interest, rather than in the interest of the well-organized patrons that will offer lucrative lifetime wealth to many Federal decision-makers after their stint at government salaries?
Comments (1)
My view is that the exact same bill should simply be re-introduced tomorrow, and passed.
My guess is that during the past week members of congress have been hearing a lot from their most unhinged, squeaky wheel populist constituents, who have called in and written in to rant and rave about greedy fat cats etc., while the quieter majority of sane people simply assumed the congress would do what it had to and pass this necessary bill.
Over the next 24 hours, these members of congress are going to get an earful from everyone else about the reckless behavior of the House of Representatives today in voting against this legislation.
Yes, of course we need deep, structural progressive changes in our economic system. We have a whole Obama administration for that. The bailout plan is only an initial, but desperately needed, emergency measure to restore the blood pressure in a collapsing credit circulatory system, the system that keeps our economy alive. The structural stuff can come later.
Too many economists have used the credit crisis as an opportunity for extended discourses on their favorite long-term, structural economic reform plans. But they need to help focus public attention on the acute problem at hand.
September 29, 2008 5:22 PM | Reply | Permalink
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