11/09/2008 05:12 am ET | Updated May 25, 2011

'The Politics of Terror' Strikes the Economy

After seven years of the Politics of Terror, and with only three months left to go, they decided to make one last play for power. The original bailout plan presented by Hank Paulson was to be the final Shock Doctrine maneuver of the Bush/Cheney Presidency. As with 9/11, the Administration tried to exploit a tragic situation for their own ends. And this five-day stock market plunge shows that, as with 9/11, they've made a grave situation even worse.

A groundswell of public resistance forced the Paulson team to cut back on its initial demands for unbridled power, but the fear generated by their initial pitch to Congress may have caused world markets to drop more steeply and more severely than they might have otherwise. From today's Wall Street Journal:

Strategist Jim Paulsen, of Wells Capital Management in Minneapolis, said the fear that has gripped the market in recent days may be an unintended, self-fulfilling consequence of recent efforts in Washington to pass a $700 billion rescue of firms saddled with soured credit bets.

"To sell the bailout to the public, everyone from the President on down had to go out and tell people how bad everything was, that the world was coming to an end," said Mr. Paulsen. "Ever since, people's expectations about the economy have gotten worse and worse and worse, and their reaction to each new action to fix the problems has gotten worse and worse and worse."

Jim Paulsen is probably right. The scare tactics used by the Administration to push their bailout plan created a wave of fear, and fear can quickly turn into panic.

The Administration didn't create this economic meltdown. The underlying weaknesses in our economy are the result of overly loose rules and regulations promoted by both parties over a period of years. But that lax, get-rich-quick attitude reached a fever pitch under Bush and Cheney.

Lobbyists were no longer just cozy insiders able to shape policy. They became the ones who wrote policy. They became the decisions makers. They went from peddling influence to becoming the ones who could be influenced. And John McCain's lobbyist-ridden campaign shows that his Presidency would promise more of the same.

The simple truth is this: We have all been riding the Exxon Valdez for eight years, and McCain has done nothing but say 'aye-aye' to the drunken skipper.

There's a bitter parallel here between the way Paulson et al. used a real crisis last month and the way this Administration used the real threat of terrorism to invade Iraq. In both cases there was a genuine and grave underlying problem. In both cases, they tried to turn their problem to their own advantage. And in both cases things went even more terribly wrong as a result. (There were 14,499 terror attacks in 2007, according to government sources, up from 208 in 2003. The war in Iraq accounts for most of the increase.)

Don't get me wrong: I'm not claiming special knowledge about the mechanics of this downturn. Nobody knows the full extent of the damage, or what it will take to fix it. There would have been an 'correction' (harsh word, that) under either party. The problem reaches far beyond "liquidity." A lot of people borrowed money with loans based on unreal housing prices. In other words, these loans used imaginary collateral.

But the greed and irresponsibility during these last eight years has been unprecedented. Hank Paulson's original plan - no oversight, no questions, reports if and when we want - represented a last wild reach for the brass ring. It was a desperate grasp for taxpayer resources, an attempt to transfer wealth from public coffers into private hands without adult supervision. The amended bailout plan contained enough controls that it should probably have been enacted. But it's a beginning, not a solution, as the last five days have shown.

Now John McCain has almost offhandedly announced a plan to buy up bad mortgage loans. That's yet another attempt at massive wealth transfer from public to private hands. A vast network of campaign-contributing exploiters enriched themselves by riding the greatest boom since Florida land in the 1920's or Dutch tulips in the 1630s. They can look forward to being rescued from the consequences of their actions should McCain and Palin be elected.

The media can talk about "that one" all they want. I didn't hear any racism in that phrase. Lots of older people use that colloquialism when they're angry. "I think every young person ought to get a higher education," a grandparent might say at the dinner table, "but that one would rather play the guitar in some nightclub." Phrasing isn't important. What's important is that this election represents another attempt by the reigning Powers That Be to continue their policies of plunder and manipulation.

It won't be easy to manage our way through this crisis. It will take leadership, and a U.S. government that is trusted at home and abroad to make reasonably sound judgments without the excessive influence of lobbyists and radical free-market ideologues.

John McCain can wander the stage of every town hall in the nation, staring into the darkness beyond the footlights and gesticulating at shapes real or imagined. That won't change the essential truth that should decide this campaign: The future of the world economy is at stake. That's The One we should be talking about.

RJ Eskow blogs when he can at: