Don’t Just Stand There
I was watching Meet The Press and at one point during the roundtable segment, everyone is observing that thus far the economic crisis on Wall Street hasn’t had a particularly large impact in the “real” economy. But soon, they all said, it would.
People kind of just left that out there like something that we have to accept. But while I suppose we do have to accept some form of dislocation, it’s not at all necessary for us to stand aside passively and just wait for downturn to come. There’s no reason why the government couldn’t be moving with as much alacrity to inject stimulus as they are to float Wall Street by with bailouts. I’ll link again to the CAP green recovery proposal. When this came out on September 9, I think you might have looked at it and said “well, this sounds good, but perhaps it’s a bit too expensive.” But put in the perspective of a $700 billion bailout the idea of spending $100 billion over two years to ensure that the ordinary people who are getting stuck with the bill for Wall Street’s screwups don’t all lose their jobs is small change:
Now the alternative of letting the economy slip into severe recession would also, I suppose, reduce carbon emissions over the short run, but I’d rather do it my way.
14 Responses to “Don’t Just Stand There”
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September 21st, 2008 at 12:11 pm
Uh, Matthew, we are in a recession. Look around you. Look at all of the foreclosure signs. Or do you by some chance think that Government economic statistics haven’t become as politicized as everything else in this country ?
September 21st, 2008 at 12:15 pm
The dislocation in the real economy will come from the lack of credit available to business large and small, and consumers. Everyone is forgetting that more than one hundred banks are sure to fail soon. Not the giants. Lines of credit are drying up to small business. Small companies with no cushion.
There is a huge lie involved in this crisis. That is that we need the gigantic banks to survive. The fact is we don’t. The bailout no matter how you slice it is an attempt to paper over old losses. So while we paper over old losses to keep the dead alive Main Street will starve.
The key here is that the trillion or so keeping the dead alive precludes stimulus. We won’t be able to afford it. Soon you will see that interest rates are rising, sharply. The cost of borrowing is going to skyrocket as the budget is 700 billion due to hit the market from the bailout. Not only will it be impossible because the market will reject it but it will still be politically impossible to send money to citizens.
September 21st, 2008 at 12:19 pm
The Wrong Strategy in the Financial Crisis and the Lessons of the Aftermath of 9/11 (What I’ve just sent to my senators and congressional rep)
The financial crisis is real, as was the crisis of national security after 9/11, but we are in danger of making some of the same mistakes again. The Democrats – and the country – must learn from that experience so that we take rapid and decisive action, but take smart action that addresses the real problems and increases accountability rather than throws it away.
Please read these two excellent posts by Professor Paul Krugman of Princeton.
http://krugman.blogs.nytimes.com…ailout-through/
http://krugman.blogs.nytimes.com…inancial-force/
The first suggests the alternative rescue plan of having the govt buy stakes in companies as the way to recapitalize firms, and then have a share of future upside potential, and also, implicitly, a quid pro quo for transparency and regulation.
The second post is shorter and, I think, more important. There Krugman implicitly compares the handling of the current crisis to the handling of 9/11 and the Iraq war vote. This is more important because demanding checks, balances, judicial review, accountability, and transparency in the rescue plan allows the country to make changes in the future – in contrast, the Bush Admn used terror to demand total authority and secrecy, which could then be used to push back on any argument for change. That cannot be allowed again.
I hope that you and Senator Obama and the Democrats will act strongly and decisively by pushing through the best rescue plan possible.
More importantly, it is absolutely necessary that the disasters of the country’s response to 9/11 be avoided. That requires a demand for accountability and transparency, and this needs to be explained to the country in the most forceful possible terms.
September 21st, 2008 at 12:41 pm
This is right. We’re WAY beyond the pale on this one, and a simple bailout of Wall Street is just going to leave us with a bigger butcher’s bill down the line.
The root cause of this crisis is that our economic fundamentals are NOT sound. It’s simply not a coincidence that the concentration of wealth in 2008 looks a lot like it did in 1928, and we’re having the largest crack-up of the financial industry since 1928.
We’ve got an economy whose investment, tax, regulatory, and workforce systems work together to ensure that all returns generated the real economy’s gains get sent up to the top. The reason it’s falling apart is because a system like that is inherently unsustainable in the US. Exotic financing instruments are a SYMPTOM of the underlying problem, not its cause.
For instance, we gave working people easy credit instead of wage gains, and then a bunch of clever financiers figured out CDOs to make even more money off giving them easy credit–which, of course, allowed for even more easy credit. Sure, it was bad the financiers were so poorly regulated that they could do stupid things, but the real source of the problem was allowing easy credit to substitute for wage gains.
We need to stop pretending that there’s just a liquidity crisis going on here. The collapse of the mid-20th Century’s distribution of economic gains and the shift toward a Gilded Age economy is a big problem, and to preserve the growth of our nation, we need to make sure our nation’s economic gains are invested in more than just the top 0.10 percent of earners.
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