The U.S. dollar is soaring (at least in relation to the British pound), the price of oil is plummeting, stock markets are calming in the eye of the storm, the big bad banks are going down like dominoes. At first sight, what’s not to like about the failure of the U.S. House of Representatives to rubberstamp the Bush-Paulson-Pelosi-Reid financial rescue package?
Better, from a strictly Democrat point of view, Nancy Pelosi and company are squeezing every drop of partisan advantage from the process itself, by which lame-duck Republicans are trying to fix a largely Democrat-created problem that Republicans like John McCain could see coming for at least the last three years, and actually tried to do something about, over Democrat objections.
(Most readers won’t know this because they are not being told by the mainstream media: but yes, McCain began pleading with the Senate Banking Committee to act on huge irregularities discovered in the accounts of Freddie Mac and Fannie Mae, back in May 2006, two years after a Bush administration initiative to improve their regulation died in Congress. McCain’s efforts were ridiculed, then stifled by ranking Democrats, including the committee chairman, Chris Dodd, the leading recipient of financial contributions from lobbyists for the very banks McCain said were “gaming the system.” Senator Barack Obama is incidentally the second-biggest recipient of political contributions from these sources.)
Nancy Pelosi to the U.S. Senate, Monday, on the figure of $700 billion: “It is a number that is staggering, but tells us only the costs of the Bush administration’s failed economic policies: policies built on budgetary recklessness, on an anything-goes mentality, with no regulation, no supervision, and no discipline in the system.”
This remark was as close to the opposite of the truth as it is humanly possible to get. Even by the standards of politicians, it was shameful. That it was used by a politician who went on to pat herself and Democrat colleagues on the back for their selfless bipartisan efforts to rewrite the Bush-Paulson rescue proposal into a shopping list of Democrat attachments—including e.g. Harry Reid’s attempt to squeeze in an extension to the moratorium on oil shale drilling—speaks to a profound unseriousness.
Ms. Pelosi’s speech itself could not have been better designed to discourage Republicans in the U.S. House—whom she knew were receiving messages from their constituents 10-to-one against the rescue package—from voting for it. One must reasonably assume she wanted the measure defeated, by those Republicans, for political advantage.
The combination of great political cleverness with moral vacuity—cynicism, in a word—is a plague throughout the western world. The phenomenon is hardly confined to the left-of-centre parties, and yet neither is it evenly distributed. For cynicism of that nature requires domination of the news media. Supine media, in the tank for the Democrats, make it possible in this case.
But the problem transcends left and right. We cannot solve problems, in a “bipartisan” or any other way, when the cause of the problems is concealed from us, and false explanations are substituted, whether from malice or from ignorance. We can only compound problems in this way.
The various credit crises we face are real, notwithstanding the facetiousness with which I began this column. Anyone who doubts this should look into shipping news. All over the world, ships carrying vital commodities are failing to load and sail because banks are currently too shy to extend modest, conventional credit instruments. The cumulative effect of that, and much else like that, will soon bring home the reality of failing banks even to those who keep their money in pillows.
The only thing I liked about Hank Paulson’s original proposal (of three pages) was its crispness and clarity. Take $700 billion of bad debt out of the system, let the government with its greater resources carry the risk on it, and maybe, just maybe, the banking system will right itself.
It was a clean proposal to pump water out of a foundering hull, and every complication added to it (including even the ban on short-selling) reduces its effectiveness.
Moreover, if the banking system recovered, and with it the economy that depends upon it, the government would have a fairly good chance, over time, to get its money back, as debtors recovered the ability to make payments.
The question should never have been how to encumber the pumping operation. Rather, it should have been, will $700 billion be enough? For that is the fallout from the subprime crisis alone, and we have credit card, auto purchase, and several other credit crises stacked up behind it.
And if it is not enough, what would be better? To let nature take its course, like a hurricane, and then rebuild from the ground up? Or try to rebuild in the face of the hurricane?
Ivy League America assumes the latter, Main Street America the former.
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