Monday, September 29, 2008

A Bailout May Help the Economy, But Does that Mean It's the Right Thing to Do?

[This article also appears on You can access it from my author page here.]

Man, this bailout business has created strange bedfellows. The Democratic leaders of Congress have pushed a measure originally proposed by the Republican president (albeit in a very changed form, but still with the support of the administration), and the Republican House minority leader also supported the legislation, and yet, the bailout still went down to defeat today, 228-205.

The vote made for strange bedfellows, with 95 Democrats and 133 Republicans teaming up to say "no." (140 Democrats and 65 Republicans supported the bill.) It's not very often that I am sympathetic to the position of 133 House Republicans (and by "not very often," I really mean "virtually never"), so even if the reasons behind the votes differ, I knew I had to take a deeper look at what was bothering me about this whole bailout deal.

After all, it seems pretty clear that while the subprime mortgage crisis was caused by Wall Street recklessness in an environment of deregulation, a policy urged by Republicans and tolerated by Democrats since Ronald Reagan was president, failure to address the current situation could devastate the finances of the average American. Even the esteemed, even-keeled Warren Buffett warned Saturday that if Congress didn't act, there was a risk of "the biggest financial meltdown in American history."

So for the purposes of this discussion, I'm willing to take at face value that the current bailout legislation, which even in its amended form gives unprecedented power to the executive branch and requires the commitment of an enormous amount of taxpayer dollars, is vital to secure the economy. (For now, we will assume that other alternatives, such as the Swedish approach in 1992 that asked more of the banks, or an idea floated in an article on that would impose a securities tax to both pay for the past damages and encourage responsible trading in the future, are not going to do the trick, since, realistically, the government is not considering those ideas, regardless of how effective they would or would not be.)

But what I have come to ask myself is, "So what?" Does the imminent meltdown of the financial markets mean, automatically, that the American taxpayers have to bail out the system? While we know that the immediate good could be served by the government putting up $700 billion of taxpayer money to undo the damage done by Wall Street greed, is such an action really in our long-term national interests?

As I've written before, I'm a strong believer in the idea that an electorate gets the government it deserves. The current economic crisis did not come about in a vacuum. Rather, the need for Congressional intervention was the always-inevitable result of a policy of rampant deregulation. So this crisis isn't something that was suddenly thrust on the American people out of nowhere. Rather, by electing politicians that espoused the system that collapsed, the U.S. electorate also has to take responsibility for the mortgage meltdown.

A part of me feels like if the government now steps in to bail out Wall Street, it will mean that both the financial industry (which behaved in such a manner to foist the current crisis upon us) and the voters will be spared having to suffer the consequences of their actions. So what is to stop the same kind of greed from taking over in the future? Where is the deterrence?

And more importantly, where is the remorse of those responsible for the meltdown? Where do you see the guilty parties taking responsibility for their actions? Even as the bailout was being debated last week, you still heard from a lot of Republican members of the House and Senate who were supporting the concept of a bailout that oversight should be limited so as not to impede Wall Street's ability to prosper. After our economy was pushed to the abyss, they were still fervently clinging to their deregulation Kool-Aid. They were still defending the very policy that had allowed the financial meltdown they were seeking to address. I can't help but feel like the message of why this all happened and how damaging it has been to the country hasn't gotten through to these people.

Sometimes I think, maybe, just maybe, the only way for the politicians, and even more so the electorate, to understand that a more civic-minded approach to governing is needed would be for the full force of the Bush/McCain view of the world to be thrust on the country. Maybe Americans need to connect the dots directly, so that they vividly see with their own eyes that the policies of the elected leaders they supported have directly led to the unemployment, lack of credit, loss of retirement accounts, bank failures, etc. that they would be experiencing (if Buffett is right). Maybe it would foster an aversion to the kind of get-rich-quick, something-for-nothing, support-corporations-over-people approach to governing that has reigned in recent years.

I'm not prepared to say for sure that Congress should turn a blind eye to the economic crisis and say, "You guys made your coffins, now lay in them." But that doesn't mean that we are not losing a big piece of our democracy when we allow the government to socialize $700 billion worth of Wall Street mistakes, and, as importantly, allow the sins and greed (and the governing policy that allowed them to occur) that led to the current crisis to effectively go unpunished. It really is a damned-if-we-do, damned-if-we-don't situation. The taxpayers will pay dearly if Congress doesn't act, but that doesn't mean there won't be a price, perhaps different but possibly equally high, if the government does bail out Wall Street. It's just a matter of which loss you want to accept.

And maybe that' s why a big part of me just wishes that Wall Street is left to solve (or not) its own mess. Yeah, I know that people would be hurt, and I would hardly be happy with that. But, again, maybe we would be better off in the long run, with a better understanding of the importance of governing the right way.

There has to be consequences for actions. Without them, a society can't function. If Congress manages to overcome today's setback and pass a Wall Street bailout this week, those who have profited from advocating a system that was always destined to implode will, in the end, pay no price for their actions. The American taxpayers will be picking up the bill, instead. And that, to me, is a dangerous thing, maybe as bad as the potential financial meltdown Buffett has warned about.