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The Failure of Conservatism

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with Ed Paisley, Vice President for Editorial, and Brian Katulis, Senior Fellow at the Center for American Progress Action Fund.

In his new book, The War Within, Bob Woodward describes U.S. Treasury Secretary Henry Paulson's initial skepticism about proposals for a troop "surge" when it was first being discussed among Bush's cabinet in late 2006. "What is it we're actually talking about?" Paulson asked. "I don't know what it is you're trying to do."

Americans should be asking this same question of Secretary Paulson as he requests some $700 billion to bail out Wall Street. Like the troop surge, which threw more U.S. soldiers and money into a growing civil war without a workable long-term plan to bring about lasting political reconciliation in Iraq, the Bush administration's proposed financial rescue plan attempts to stem a crisis of its own making without any vision of how to fix the underlying problems in our financial markets.

Both the $200 billion surge and the proposed $700 billion bailout are emblematic of a failed conservative ideology. The end days of the George W. Bush era are now being defined by the forthright repudiation of two of the main tenets of the modern conservative agenda: Economic deregulation and the "war on terror."

Seven years after 9/11, President Bush's anti-terrorist policies are in tatters. Witness the recent terrorist attacks in Yemen and Pakistan, the resurgence of the Taliban and Al Qaeda against a resource-starved U.S. effort in Afghanistan, and the reality of an increasingly destabilized Middle East. The security situation in Iraq is much improved -- violence in Iraq has dropped - but the surge was making up for lost time and past mistakes. Moreover, the Iraq surge has failed to address the underlying political conflicts stirred up by the U.S. invasion and occupation of Iraq. Like the proposed bailout, the Iraq surge did not address the core problem and only treated a symptom of the disease.

Just as the emergency escalation of 30,000 troops to Baghdad represented a form of triage for President Bush's disastrously counterproductive Iraq "crusade"--a way to reduce violence by any means necessary, even if it meant adding people with the blood of American troops on their hands to the U.S. payroll--so too the Wall Street bailout represents an attempted rescue of unfettered financial markets sorely lacking in prudent regulatory supervision.

Conservatives are now asking the American people to pay big time for the dismantling of once sound financial regulations in the name of free market ideology run amok, and for the conservative mismanagement of existing rules and regulations in the name of less government. The $85 billion bailout of global insurance giant American International Group Inc. defines the failure of conservatism in the financial markets.

AIG sold close to $500 billion worth of credit default swaps--a form of insurance on debt such as mortgage-backed securities--without a single financial regulator having the power to police this $63 trillion marketplace. When that insurance came due, U.S. taxpayers had to pony up.

Why? Because conservatives such as former Senator Phil Gramm ensured back in 2000 that the credit default swap marketplace would remain completely unsupervised. And because Bush administration regulators then decided not to enforce rules that would have prevented unscrupulous mortgage brokers and Wall Street financiers from originating increasingly questionable and sometimes fraudulent home loans to be packaged into securities and sold worldwide with AIG insurance "guaranteeing" their value.

When AIG couldn't pay up, the financial markets panicked, U.S. taxpayers bought 80 percent of the company. But then the obvious instability of that $63 trillion credit default swap market threatened to bring down our entire credit market on September 12. Now, the Bush administration's point men selling their plan to arrest the cascading financial crisis, including the president himself, Vice President Cheney, and Treasury Secretary Paulson, claim nothing less than a swift and massive government purchase of these mortgage-backed securities will save our financial system.

But what then? Bailing out Wall Street does not resolve the deep problems in the U.S. housing market created by the out-of-control securitization of individual home mortgages. It only shifts these debts onto the American taxpayer. Similarly, the surge has failed to address the disastrous consequences of the invasion of Iraq, leaving problems such as Iraq's massive refugee crisis, the outflow of terrorist tactics and technology from Iraq to the surrounding region, and festering anti-Americanism for the next administration to deal with.

In both the proposed bailout and the Iraq surge, the solutions do not address the core problem, and do not speak to the failed conservative ideology that generated the crises.