You hear that implosion reverberating through financial markets? It's the sound of decades of conservative ideology collapsing.
This raises many pressing questions, both short- and long-term. What's the deal with the Paulson deal? There's a lot of well-aimed skepticism about this plan, and myself and my EPI colleagues will be commenting on it all week (I'm not liking what I'm seeing--not enough safeguards to protect taxpayers from banks perfectly happy to dump toxic debt on the government; not enough quid pro quos for Main Street). But for now, I'd like to focus on an even more important question: what next?
The week that just ended revealed the myth of market fundamentalism: the notion associated with mainstream, Milton Freidman'esque economics, and amplified by anti-government conservatives that unfettered markets will provide society with the best outcomes. Such simplicity, such elegance...such nonsense.
For many of us, it didn't take a market failure of the magnitude we've witnessed in recent weeks to belie this myth. We've been documenting the slow bleed of much subtler market failures for decades. Most recently, we've stressed that despite years of growth before the recent downturn, the real income of middle-class working-age families fell $2,000. Poverty rose. The share of the population without health coverage went up. For the first time in years, the rate of homeownership declined.
If that's Bush's ownership society, please don't sign me up (in truth, it's too late to refuse membership: as taxpayers, we're now proud owners of a growing pile of toxic debt--thanks, George).
But slow bleed or sudden shock, the idea that I've described as YOYO (you're on your own) economics is seriously on the ropes. I still encounter some old school ideologues on the CNBC airwaves, but they're fewer and more contrite, and, interestingly, they generally support the bailouts. Apparently, their mantra is actually "you're on your own; we're lookin' for a bailout." It's privatize the profits, socialize the losses; patriotism for the masses, socialism for the rich.
Such chatter will always be heard, but progressives have a rare opportunity to change the economic debate in this country by injecting some glaringly obvious truths into the fray, such as:
--Deregulated markets cannot police themselves; they tend toward speculation, vastly underpriced risk, and deeply damaging bubbles;
--An economy that generates growth while leaving most families behind is a broken economy;
--We can neither achieve broad prosperity nor compete globally without robust growth in key sectors which we have ignored or underfunded, including manufacturing, green production, and cradle-to-retirement public education; crafting evermore clever financial instruments will not pave the way to dependable, broadly shared growth;
--No private sector firm should be too big to fail; any firm of that magnitude must be nationalized;
--Capital markets are dysfunctional; borrowing and lending standards are ignored; lax capital requirements lead to constant over-leveraging; shadow accounts thwart transparency;
--We apparently can quickly find (or borrow) the money to do the stuff the authorities deem necessary, be it war or bailout; thus, we can also find the money we need for investment in people, from health care to education to infrastructure, etc.
--Supply-side, trickle-down economics does not work; it exacerbates already excessive levels of market-driven inequalities and defunds government, which leads to:
--Clearly, we need government to be amply funded; as is the case today, we will always turn to federal government to meet the toughest challenges, and if the money isn't there, we'll borrow from the future. This means taxes cannot only be lowered; they must sometimes be raised.
--For decades, under the spell of mainstream theories like "rational expectations" (bubbles can't form because prices can't diverge from reality for long), economists and policy makers have missed almost every big market failure, including the last two bubbles (in IT and housing). Government intervention is only "distortionary" in these models, adding the anti-gov't bias since Reagan. We desperately need policy makers and their economists to be much better analysts of markets and how they fail. It is not an exaggeration to state that much of what's gone wrong in the current case could have been avoided by better oversight, common-sense regulation, and clear-eyed analysis of economic indicators that should not have been missed.
If I were Martin Luther, I'd hammer such a list--and this is just a rough draft--feel free to edit and comment--to the doors of the Federal Reserve, but I'd probably get arrested or worse the minute I took out my hammer.
The point is that these are potentially transformational times.
Transformations evolve out of crises. As the great Robert Kuttner stresses in his new book, the big social movements that have transformed our politics have often resulted from the collision of brave, visionary leaders and major upheavals: Lincoln and the Civil War, FDR and the Depression, Johnson and the Civil Rights movement. Kuttner believes the stage is set for the next transformation, this time from a broken economy that threatens American prosperity to one that works for everyone.
After reading Bob's book, I sent him a note pointing out that it might well be a lot harder to motivate major change given the slow bleed we've experienced versus civil war, economic depression, or mass protests and burning cities.
But that was before the bust of the last few weeks, before the onset of a crisis of capitalism that is widely described as the worst market meltdown since the Depression, before the most aggressive government intervention into the economy I've seen in my lifetime. Maybe these recent events fail to rank with those motivating Kuttner's insights, but they're getting awfully close.
What has to happen to realize the transformational potential of the moment? It's quite amazing that this is occurring during the very moment in a pivotal election when a) the electorate is starting to pay attention, and b) the economy is the dominant issue.
The candidates are already grappling with these issues, both stressing some versions of the lessons I noted above, which is a nice way of saying McCain is adopting the mantel of reformer and regulator in order to convince pissed-off voters of his midnight conversion from a legislator who accommodated a lot of this damage to one who will fix it. But he's so changeable these days, even uninformed voters are seeing there not much there to his populist railing. It's all starting to sound like a pretty unhinged "I'll say anything to get your vote!"
Obama's got a head start. He's much less ideological about all this stuff, with a strong pragmatic bent and a willingness to listen to diverse views. He's also been talking for a while about the need to regulate financial markets, and his ideas are sound. Had they been in place, a lot of this mess would not have occurred.
But, as Kuttner stresses, that doesn't mean he will be transformational, or recognize the importance of injecting views like those above into the heart of the national debate. He certainly has that capacity--the vision, the intellect, and the ability to present the big picture in an extremely compelling way. This may be one of those times when the collision of a great leader and cataclysmic events can turn the tides.
Or not. It all hinges on the next few days, weeks, and months.
Jeez...watching history unfold in front of you like this is sure worth the price of admission, ain't it?
Having presided over the most incompetent administration in American history--which is quite astonishing given Carter and Nixon as standard-bearers--George Bush has struck a swath of destruction all the way from Texas to Washington, from New Orleans to Baghdad. Preaching deregulation and free markets like Gospel, conservatives have brought us from relative prosperity and balanced budgets under Clinton to the brink of Depression--all in 7 short years.
The Neo-cons, lead by Bush and Dick Cheney are typically making an epic power grab as they did before the Iraq War and after 9/11. "Give us the power and trust us; don't ask too many questions; keep that busybody Supreme Court out of our hair." Standing at the precipice, more sensible Republicans on the Hill want no part of the Bush Plan. John McCain resembles an overworked parent between fighting children.
If Bernanke wants a meeting with warring Republican factions in Chicago, I wouln't go. Chicago is famous for bloody streets.
the total amount of all that debt bundled together is why $700 billion is being asked for. and
these folks don't know that that amount will be enough even to cover the mortgages.
in fact, the talking heads are now talking about INCLUDING 'ANYTHING' IN THE DEBT TO BE ADDRESSED. and they're unwilling or unable to say what 'ANYTHING' actually includes.
so, I wrote my senators today asking them to unbundle the 3 different types of debts I heard mentioned during the hearings.
I also informed them that I'm more likely to be willing to underwrite student loans that
have already been granted, if needed, than I am to rescue people who overused their credit
cards.
I think we can make the case that school loans are an investment in our nation's future--
while people overusing their credit to buy barbecue grills can't be similarly justified. but that's just me.
in any case, tho, I believe further hearings should be held to address the 3 different types of debt. this is especially true since, even Paulson admits, no one actually knows HOW MUCH the mortgages alone are going to cost us. that's US -- the taxpayers.
so, please -- if you think the different types of loans should be un-bundled -- write your Senators and let them know your views.
what is this for?
because the 'networks' are even less useful than the useless cable infotainment.
The proposed legislation is a terrible mistake. If the purpose of the law is to enable banks to continue to give underemployed and credit unworthy borrowers more access to subprime loans in order to prop up the economy, we are merely extending the same practice that led us here in the first place, giving more bad loans to beseiged consumers. The problem is that jobs and wages in the middle classes have been under attack for decades in their ability to work and pay for housing and cars, the "real economy" has finally resulted in the collapse of Main Street. Thinking that Wall Street can continue to do business while the rest of the country is suffering is a disastrous idea. We are quickly becoming the new U.S.S.R, the United States Socialist Republic, literally. And we will go down the same fatal road that they did for the same reasons. You can not just prop up an economy without giving people a chance to go to school, work for a living, and bring back industry by stopping this Free Trade NAFTA bleeding of our jobs overseas. This is the ultimate result of decades of economic mismanagement and legislative foolishness -- under Democratic and Republican administraions.
Absolutely correct!
The vote was strictly along party lines, with Republicans pushing through break-through legislation that ended the previous prohibitions on banks selling securities that included millions of risky mortgages they wrapped up as investments for your retirement accounts.
They want these risky investments to be part of your Social Security retirement. Now look what's happened.
Billions and billions of dollars in bailouts, and that's just this week alone.
The Republicans game our financial system- they game your retirement investments- they game public education- the health care system... they game our future for the massive profit of a very few powerful friends.
Sara Palin and John McCain are more of the same Republican game.
America: Don't be Fooled Again."
Will someone who is able to please get the above to whomever decides what goes into Obama's TV commercials ASAP?
I feel certain that it will change minds all over the country.
What do you think?
Thanks- killmenow
The other guy's analysis is "silly", but yours consists of the unsupported assertion that his is silly, and a bunch of maundering generalities designed to allow you to reach your pre-ordained conclusion about a "free market".
It was "notions" that led to the crisis, not the naked greed of Conservatism Rampant, which arrogantly removed the laws governing corporate behavior, so as to permit the corporate class to do anything it chose, victimizing whomever and whatever they chose, in the process. Look at the shiny object.
Your so-called analysis is about a centimeter deep, and rapidly evaporating. All you can possibly accomplish with such addle-pated nonsense is to bring ridicule on yourself.
Who do you think ended up with all profit from the hundreds of millions, borrowed in the taxpayers name, which has been spent on the war--shareholders and officers of large corporations. Now this administration wants to lie it's way to giving another 700 Billion of taxpayers money to Wall Street. I heard a Reagan era conservative who was at the Treasury on the radio tonight. He said the government should LEND the money at interest, secured by the assets of the bad loans.
The idea Paulson proposes essentially wipes out the debt and leaves the assets with the people who created this mess in the first place. And then they have a clause saying the act is not reviewable by regulatory or judicial entities, it's a coup by the executive branch and I pray the American People will get in touch with their representatives and say No Way.
Chinese Government is Top Foreign Holder of Fannie Mae, Freddie Mac Bonds [WSJ]
This administration has betrayed the basic premise of government 3 co equal branches of government providing checks and balances.
They all need to go.
And the GOP which dominated for years who gave carte blanche to this administration has betrayed everyone.
It was a government for sale to their special interests and the people were not of interest at all.
Now McCain double talks. But his economic plans and advisors wanted continual deregulation which gave birth to greed running rampant. He was involved in the Keating 5.
He is not one who will solve these problems.
He contributed substantially as has his advisors.
His ads are nothing but double talk and spin sadly lacking in veracity.
Please, I beg of you too contact your State representatives and pressure them to vote No on this fraudulent proposal. This is nothing more that fear tactic by the Bush administration to coverup the corruption in Washington and on Wall street. The money is not intended to be used for the mortgage crisis. The intent is to bailout mismanagement of Corporate banking executives failure to follows Federal Laws that governs our deposits and investments. The monies should and could be used to payback individuals who made earnest deposits and investments with their money.The crooks should be prison for the crime they have committed against our people. If this bill is passed. We will still be confronted with more problems in the near future. I urge you to contact your representatives to vote No. People this is the biggest coverup in American History! Don't Be Stupid, It's time for us to act Now!