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The Only Pertinent Question
I can't defend the bailout plan submitted by the Fed to Congress. It is loosely constructed, giving broad discretionary powers and a purse equal to a third of the 2008 budget to the Executive branch. And it will dump up to $700 billion more atop the $600 billion in private debt the Fed already has levied on taxpayers. What the details of the final legislation will look like, no one can say at this moment.
What I can say is that our nation cannot be allowed to suffer a second Great Depression. Whether the credit megacrisis blindsided our government, happened more rapidly than expected or was somehow planned for nefarious purposes is irrelevant to the basic truth that a total collapse of the U.S. banking system would have repercussions far beyond our economy and our shores.
If, as economists such as Paul Krugman have said, we are faced with a return to 1931, then let us remember what those days gave the world: not just terrible hardships at home, but hardships beyond reckoning abroad. And those hardships in countries less stable than ours gave rise to totalitarian ideologies that required a horrific world war to halt.
We have no trouble understanding that poverty lends itself to crime in our streets. Imagine what nationwide poverty would look like today in the hot spots of the world. How many Kim Jung Ils would rise across the globe? How many Mussolinis and Hitlers would we face in the next few years? And what would a world war look like today?
The question is not whether to avert global economic collapse. The only reasonable question to ask now is: How best to avert it and preserve our democracy?
Comments (10)
Come on, Ripper, this blog is a little light on historical context.
I like Paul Krugman as much as the next person, but the world already suffers abject poverty for the vast majority of people. Further, the stage for Hitler was set long before the collapse of the American stock market. The Treaty of Versailles was most certainly the straw that broke the back of Germany, not the Great Depression in America, which was really only great to us.
Suffering doesn't follow financial cycles.
No doubt that the 100,000 employees of AIG would be hurt by them going under, but that would not cause the Great Depression Part Deux. Some small business, individuals and corporations would need to find a new insurer, a few stock owners would lose some cash, but that is about it. I have yet to read or hear a single explanation of AIG that includes why they are so integral to our economy that letting them go out of business would be fatal.
Business go bankrupt all the time. AIG gambled and lost. There need to be consequences for those actions.
As a taxpayer, I would be willing to consider the Freddie and Fannie bailout, but only in terms of helping the mortgage-holders. No problem, but take taxpayer money and submit to massive taxpayer oversight. Otherwise, fuck 'em. They can fail and we will do what we can for individual citizens in the aftermath.
AIG has been on a collision course with insolvency for years. AIG is a symptom of the disease. Insurance companies have been ruingin industry after industry for years on end - health care (including malpractice), homeowners insurance, etc. Maybe acturial science is really more like Scientology than real science? Maybe they were never regulated properly to begin with or are simply a symptom of our larger issue with corporate America vice the insurance industry in particular?
We should sacrifice some fingers to preserve the body as a whole. The "economy" should be a tool of reality and not dictate reality. Time to start letting this shit deflate and let some companies fail for being incompetent.
How much longer are we going to invest good money for shitty returns?
September 21, 2008 7:48 AM | Reply | Permalink
Jason, do a little research before you criticize. Notice I wrote that economic hardships "gave rise" to totalitarian ideologies, not "gave birth" to them. In fact, such ideologies are with us today but pose less threat of growth due to rising standards of living in most countries.
The Beer Hall Putsch didn't occur until until November 1923, was put down that same night, with Hitler jailed until December 1924. Although nationalism stirred by resentment of the Treaty of Versailles played an enormous part in the rise of the Nazi Party, that resentment had more to do with the economic aftermath of the treaty and WWI itself.
Hitler was not elected chancellor until 1933, two years after the Great Depression—also known as the Worldwide Great Depression—began taking its toll across the globe.
AIG is not just a company with ties to American firms. Nor is this post concerned primarily or exclusively with AIG.
Far more is at stake than you seem to realize in your comment. Unfortunately, your analogy of sacrificing a few fingers to save the body doesn't work. You are advocating sacrificing the lifeblood of civilized commerce.
September 21, 2008 10:38 AM | Reply | Permalink
Do a little more study of your own before you neglect criticism that is justified. Economic hardships throughout human history have given rise to dictators and totalitarian governments of every possible description. That isn't a 20th Century phenomenon.
The Worldwide Great Depression may have hurt the world's middle class and gave them a taste of poverty that the other 90% of the world had already been living with since human civilization began. Certainly more poverty and despair than the typical American in the 1920s faced. Hitler rising to power had little or nothing to do with the American financial markets.
Mostly this blog is told from a purely Western frame of mind and you are quite allergic to anything resembling constructive criticism. When you deal in absolutes, expect to get push back from people who know the same history as you, but came to different, perhaps more nuanced, conclusions.
Your hyperbole aside, letting AIG go under wouldn't be sacrificing the "lifeblood of civilization." Will it have ripples and touch other sectors? Sure. But letting mismanaged companies go out of business or face massive regulation and restructuring for being helped out by We The People is not going to end the global economy.
That wasn't the sky falling, Chicken Little, and we don't need to take on a trillion dollars in new debt, better invested in a million other things with much higher potential returns. Not sure why you aren't able to take a more rational, logical and holistic few of this one.
Must have a lot of money invested in the market.
September 21, 2008 11:37 AM | Reply | Permalink
There you go again, Big Chicken.
AIG's $85 billion bailout represents a fraction of the $65 trillion in global investments at stake, more than a few trillion of which would evaporate in a meltdown of our banking system. So quit making this about AIG. Your frame of reference is exceedingly narrow or just narrow-minded.
I'm not allergic to constructive criticism at all. Let me know when you offer any.
As for your deconstructive critique, you totally miss the point that hard times do create circumstances ripe for the rise of dictators. Time and again history has shown that strongmen rise to power on the backs of desperate people fighting over scarce resources. Hitler is exactly such an example.
Whether or not American financial markets contributed to the spread of Nazism is irrelevant to my post. My post makes no assertion that American markets were responsible for Hitler's rise to power. That is your straw man. Deny history if you will, but Hitler rose to power in very dark times for Germany.
As for exhibiting what you call a "Western frame of mind," again you attempt to belittle the scope of my argument based on your preconceptions. Had I wished to reach further back into history, I would have done so. However, since the subject treated in my post is the risk of another Worldwide Great Depression, my essay deals with the time frame immediately surrounding the previous Great Depression of the 1930s. I have made no pretense of representing every conceivable historical example in my post. Your fault me unfairly for not expounding on times long dead to the 1930s.
Your point that many nations have suffered and now suffer extreme poverty is valid. That doesn't negate my point that such nations will bsuffer more in the event the Western banking system collapses. Nearly every country—whether industrialized, developing or Third World—is dependent to some extent on the Western banking system. Were another Great Depression to occur, the poorest countries would become even poorer, making them more ripe for takeover by nationalistic, totalitarian regimes.
You seem to be the one avoiding a "rational, logical and holistic" view of this. I said at the outset that I cannot defend Treasury's initial proposal for legislation. I did say action needs to be taken to avert a Worldwide Great Depression.
If you want to argue about AIG, take a time machine back to last week, because that is a done deal. We must now fix our eyes on averting economic disaster for the world.
Take your blinders off and reread the last sentence of my post.
September 21, 2008 3:17 PM | Reply | Permalink
Let me sum this up rather quickly, Jason:
You argue that the economic crisis we face is only a perceived threat, and that based on that perceived threat, Republicans are attempting to consolidate power and force taxpayers into submission.
Are you not arguing that economic hardship is creating circumstances ripe for the rise of a nationalistic, totalitarian regime? Exactly as I have argued, except that you say it's happening right now in this country?
So why would other, less stable countries be immune to such power grabs?
September 21, 2008 3:35 PM | Reply | Permalink
MarquisdeShiningSea promotes the best solution I have seen:
http://tpmcafe.talkingpointsmemo.com/talk/2008/09/take-action-2.php
September 21, 2008 3:54 PM | Reply | Permalink
I guess you missed the last 40 years. They have been robbing us blind and consolidating power for decades. This is simply the end result of the neoconservative governing ideology and the fascist state we have been trapped in for a long time now. This is the same script from the end the 1980s and the Dot.com Bomb in 2000.
Are you saying that AIG is the keystone of a 56 trillion dollar world economy that would send the whole thing into free fall? I wasn't aware our situation was so dire that a single company going out of business or its leaders being prosecuted for fraud would undo all that good work.
I guess I don't get what you are saying because it seems a little reactionary. Obama's response seems measured and appropriate. We need to use both the carrot and the stick to ensure that we don't simply let millionaires and billionaires cash out while the taxpayers are left holding the bag.
Not saying we shouldn't be concerned or that there is no "crisis" in certain sectors of our economy. I am saying that reacting too quickly or without appropriate thought to long-term strategic considerations of this opportunity is missing our chance to keep this from happening again in ten years, but with Green Energy or Sustainable Farming or whatever the new trend is that these fuckers can exploit.
We need to craft as permanent a solution as we can manage at this time, based on all the painful lessons we have learned over the last 40 years. I think that takes more than Paulson and Bernake huddled in a room for a couple hours.
September 21, 2008 4:21 PM | Reply | Permalink
PS: I wasn't assuming you supported the current Fed plan, but you seemed to buy into the initial contextual spin that something drastic must be done immediately.
I also saw you take that framing and do it one better - if we don't do something, then it will become a Worldwide Great Depression and plunge us into an eternal abyss with Stalin and Hitler and Mussolini on ever corner.
I just haven't heard a rational explanation - from the media or from you - that would indicate that is what we are facing. Seems to me they are using the same fear of Global Catastrophe to steal another trillion dollars from the American people.
We can't have that be the endgame if we want Obama to be successful.
September 21, 2008 4:26 PM | Reply | Permalink
http://www.pbs.org/moyers/journal/09192008/watch2.html
Kevin Phillips on how bad capitalism drives out good capitalism, transcript at link interview with Bill Moyers. excerpt:
Obama told me one time he read some of my books. So I would be very interested and impressed if he in January started to say something has really gone wrong in this country. And I'm not sure that I or anybody else can turn it around. But we borrowed so much money.
We've let this Las Vegas version of what used to be ordinary banks in our ordinary hometowns go berserk. Our currency is having enormous problems. People are losing their homes. We've got to face up to what our problems are and talk about how this happened. Who did it? Why? Who made the money?
Well, I think if he were to start talking about I'd take him seriously. But I think half of Washington would have a problem in their stomach needing quick relief, let me put it that way. Cause you don't rock that boat. You pretend that it's a sound economy. And if it's not sound, it's nothing that the old Democratic elixir can't fix, you know? Old New Deal in a bottle. We'll have a couple of swigs and you'll be happy again...
September 21, 2008 12:04 PM | Reply | Permalink
I hope you all have sent your congressional delegation some email on this.
Friday's Wall Street recovery showed there is plenty of capital available for the market to self correct. More importantly there is essential time for a rational approach to this problem. Congress does not have to be stampeded into hasty and ill-planned action. There were plenty of warnings posted over the last few years about the coming crash. Surely the people who posted the warnings also proposed some remedies too. The Bush plan will destroy post-Bush reconstruction in America.
September 21, 2008 3:00 PM | Reply | Permalink
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