Readers of this column know that I don't much approve of how this nations' government or economy are run. But you know I like to illuminate the stuff in the box by gazing at it from outside the box. Right now the stuff in the box is a bail out for some of America's biggest investment banks, which in turn will bail out some of their biggest clients, who are holding mortgage-related investments. In all cases, we are talking about obscenely rich people who could care less about ordinary people and have repeatedly shown that with their actions.
Yet joining the criticism of the strange coalition of left-of-center Democrats and right-wind House Republicans who "opposed" the Treasury plan mainly to make political hay just seems like jumping on a pile of big guys who have already caused permanent injury to a quarterback who had a million dollar arm just a few moments earlier. The House Republicans say they don't want ordinary taxpayers to bail out Wall Street. That is a laugh, except that some of their constituents are so brain dead they probably swallowed that poll-driven excrement without a thought.
I agree with progressives that a bottom-up rescue plan would be better. But we are stuck with the decision makers that the American voters chose, and the way things work is most incumbents will be re-elected to Congress in November. I have never drunk the free-markets always work kool-aid, but I also know that a credit freeze will almost certainly throw this country into an economic depression, and quickly. It would be very hard to dig our way out of such a Depression. In 1929 when the last Depression began the national treasury was almost debt-free. That is not the case today. The government won't be able to spend its way out of a Depression because no one will be willing to finance that level of spending. The only alternative is the kind of inflation that destroyed Germany in the 1920's, or enduring the pain until the business cycle eventually gets back on track by itself. The possibility of the complete collapse of civilization as we know it is no longer totally improbable in the short run.
So I am for the $700 billion (probably more like $1 trillion, by the time it is over) bail out of Wall Street. In effect taxpayers are buying assets that may increase or decrease in value. Congress did insist on some good changes to the original plan. It could be much worse.
It is not the first bailout in American history, and it is not always Wall Street that gets bailed out. Remember that IRS "refund" check you got a few months ago? That, aside from being a shameless election year ploy, was a bailout for us all. And some bailouts are so institutionalized we don't think twice about them, like receiving unemployment insurance or Social Security disability payments, or food stamps.
The problem with bailouts evenly distributed among the citizens or taxpayers is that they just don't work in the kind of situation we have right now. Quite a few people may have caught up on a single mortgage payment with the tax refund, but they are in trouble precisely because they habitually spend more than they make, so most of them were probably in trouble again the next month. They need their life styles to be cut back. If they did that it might be worth the government doing something about refinancing their mortgage payments.
When Wall Street was raking in profits 3 years ago, it was because they concentrated the profits from millions of relatively small transactions. In this crisis we see the concentration of millions of small losses (small here might mean up to $1 million dollars per mortgage). To deal with the crisis quickly, the fire must be put out where it is burning, not where we would like to fight fires in the future.
What is sad is that once the crisis goes away, no fundamental reform is likely. There were a few fundamental reforms in the Great Depression partly because the crisis was not averted early on, in 1930. Some radicals might argue, (and I'm tempted) that therefore it would be best to let Wall Street and the entire free-market Capitalist religion fall. The problem is that good cultural, political and economic systems don't automatically spring up after bad systems have crashed. In the last Great Depression many nations ended up with Fascist governments (See my fascism pages): Italy, Germany, and Spain of course, but also France, Austria, Slovakia, Poland and others. Even the New Deal had many fascist-type elements, most notably the death-grip on power held by President-for-life Roosevelt.