On the right, Charles Krauthamer:
| Paulson is a lame duck. In four months, he is gone. Paulson is asking for the money not for self-aggrandizement but for the same reason Fed Chairman Ben Bernanke and the markets are asking for it: to prevent the American economy from going over a cliff. |
| Some disdain that assessment as hypothetical. Paulson and Bernanke, who actually peered into the abyss on Black Thursday (September 18), think otherwise. They’re not infallible, but prudence dictates not risking the economy on the opposite bet. |
| The stock market dive and the seizing up of the credit markets convinced them that their ad hoc Bear-yes, Lehman-no rescue of investment firms had not only reached a dead end, but was actually making things worse. It had added uncertainty to a situation in which pre-existing uncertainty was already causing panic. |
| Hence the need to go below the institutional superstructure to the underlying toxic assets, which Paulson proposes to take off the private sector’s books by having the government buy them for, yes, $700 billion. |
| Congress has every duty to be careful with taxpayers’ money and to suggest improvements in the administration plan. But part of Congress’ reaction has nothing to do with improving the proposal and everything to do with assuaging the rage of constituents — even if it jeopardizes the package’s chances of success, either by weakening it or by larding it up with useless complicating provisions designed solely to give the appearance of sticking it to the rich. |
| Window dressing such as capping pay packages, which the Bush administration has already caved in to. I’ve got nothing against withholding golden parachutes from failed executives. But artificially capping the pay of people brought in to lead these wobbly companies back to health is a fine way to tell talented executives to look elsewhere for a job. In the demagogic parlance of this election year, it is a prescription for outsourcing our best financial minds to London and Dubai. |
| The mob is agitated, but hardly blameless. While the punch bowl — Alan Greenspan’s extremely low post-9/11 interest rates — was being held out, few complained about cheap loans and doubling home values. Now all of the sudden everything is the fault of Wall Street malfeasance. |
| I have little doubt that some, if not many, cases of malfeasance will emerge. But what we conveniently neglect is the fact that much of this crisis was brought upon us by the good intentions of good people. |
| For decades, starting with Jimmy Carter’s Community Reinvestment Act of 1977, there has been bipartisan agreement to use government power to expand homeownership to people who had been shut out for economic reasons or, sometimes, because of racial and ethnic discrimination. What could be a more worthy cause? But it led to tremendous pressure on Fannie Mae and Freddie Mac — who in turn pressured banks and other lenders — to extend mortgages to people who were borrowing over their heads. That’s called subprime lending. It lies at the root of our current calamity. |
| Were there some predatory lenders? Of course. But only a fool or a demagogue — i.e., a presidential candidate — would suggest that this is a major part of the problem. |
| Was there misbehavior on Wall Street? The wheels of justice will grind. But why wait for justice? If a really good catharsis will allow a return of rationality to Capitol Hill — yielding a clean rescue package that will actually save the economy — go for it. |
On the former and future right, Kevin Phillips:
| McCain has never been much on economics, but Paulson’s indicated arrangement with the Democrats — financial firms will get to turn in the toxic debt and financial instruments they can’t peddle for reimbursement by an American taxpayer-funded entity — is so bad that if the former Navy pilot grins and accepts it he will look like a wobbler and a Grade A sap. He’s already lost the edge he had coming out of the Republican convention. Barack Obama, by contrast, can get away with being evasive because the Democrats look like they’re accepting a measure principally authored and promoted by Paulson and Federal Reserve Chairman Ben Bernanke. |
| Now for a little bit of background. We’re not just looking at a real estate mess. Over the last quarter century, the total of public and private credit market debt in the United States — most of it, in fact, is private — has more than quintupled from $8 to $48 trillion, the biggest such orgy in world history. Over that period, domestic financial debt – the money borrowed by the financial sector for expansion, consolidation, empire-building, leverage, exotic mortgages, gambling, you name it – swelled from just $1 trillion to some $14 trillion. Employing these economic steroids, the financial sector ballooned itself from 14-15% of what back in the mid-1980s was the Gross National Product to 20-21% in 2004 of the newer Gross Domestic Product calculation. In the meantime, the once-dominant manufacturing sector fell far behind, dropping to just 12% of GDP. In a nutshell, the economy has been hijacked in recent decades by the very groups who now purport to have remedies – Wall Street, from whence Paulson emerged, and the money-bubbling, don’t regulate the dangerous practices Federal Reserve Board, from whence Bernanke comes. |
| The public is finally starting to understand what’s been going on in this perverse milieu of Wall Street socialism where private individuals get the profits and the taxpayers underwrite the bail-outs. It has a long history; in Bad Money I have a chart that lists fifteen or so rescues over some 25 years. Finance has now grown into an octopus, with dozens of debt, speculative, credit card, mortgage, interest group and Washington lobby tentacles that will lock onto any new bail-out proposal and turn it into another food supply. Even as the new “legislation” is being drafted, you can bet all the lawyers, lobbyists and big donors are already on the phone to key people in Congress, the White House, the Treasury and the Federal Reserve. Anybody with a good nose can almost smell the fixes and corruption, and of course, political critics and the public will be told that there’s just no time for debate, no time to go over the details. Don’t pass it tomorrow, pass it yesterday. We can assume that George W. Bush will sign it, possibly with a fleeting smirk. |
| Will this bail-out solve the current mess? Of course not. For the last year, Paulson and Bernanke have been Fumble and Bumble. They won’t strike at the roots of the problem – indeed, one could almost say the two men represent those roots — so their rescue gimmicks fail and the crisis extends and deepens. |
| Ironically, the best hope for resistance comes not from the left but from free-market elements of the Republican Party. I have not had much good to say about the GOP for years, but recent events may hint at their political and ideological renewal. Sometime back, when Congress passed the Fannie Mae and Freddie Mac bail-out program, Senator Charles Grassley of Iowa, the ranking Republican on the Senate Finance Committee, ultimately voted against it. He had worked on its early stage, but ultimately voted no because seeing a pay-off to “Wall Street and K Street (the Washington lobbyist corridor)”. Then the Republican National Convention, in a rejection of Bush, Paulson and Bernanke, put an anti-bailout section in its 2008 platform. A few days ago, the ranking Republican on the Senate Banking Committee, Richard Shelby of Alabama, called on the Fed to reject bail-outs and allow the markets to work even if the consequences are “brutal.” And on September 18, a hundred Republican members of the House of Representatives sent a letter to Paulson and Bernanke requesting that the two men “refrain from conducting any additional government-financed bail-outs for large financial firms.” |
| I suppose there’s a chance that McCain could decide to oppose the administration and truly fight this latest round of Wall Street socialism. Maybe instead of asking George W. Bush to fire SEC Chairman Cox, McCain could come out against Paulson and Bernanke. But the odds are much greater than an embarrassed McCain will flounder toward November defeat. |
| That would mean that the anti-bail-out forces in Congress and at the grassroots will take over the national party helm in 2009, and it’s not too late to start right now. If they strike a tough stance in the next few days, they could expose, delay, amend and even block — by any available means — what amounts to a massive mutation and even perversion of the U.S. economy. The leader of the hundred House Republican conservatives, Congressman Jeb Hensarling of Texas, summed it up quite neatly: “Enough is enough. It’s time to bail out the American taxpayers from bail-out mania.” Hopefully, we’re looking at a September battle cry. |
Is that what McCain is up to? Jim Manzi says “it’s hard not to credit him for running a tactically ingenious campaign”.
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