Thursday, September 25, 2008

The Mother of All Bail Outs

What are we to make of the Bush/Paulson/Bernanke proposal to allocate $700 billion to bail out the financial services sector of the American economy?

One might begin by pointing out that only one thing prevented the proposal from being laughed out of town: fear. Under the proposed legislation, Congress was essentially asked to hand an amount of money equivalent to ¼ of last year’s entire federal budget to the Secretary of the Treasury with the instruction to do with it whatever he saw fit. In the process, he would be expected to engineer something approaching a federal government takeover of a major sector of the U.S. economy. Oh, and there is no time to debate. It must be done right now.

It used to be said that only Nixon could go to China. Well, one supposes that only a Bush administration could take an interventionist approach to the American economy that LBJ and FDR would have never dreamed of.

However, bipartisan fear prevents laughter. Congress relishes the power to make decisions about things that don’t matter much in the grand scheme of things. Now, they face a potential crisis that they are not sure they understand. If they don’t act, will it turn 2008 into 1929 redux? If that happens, it would prove a threat to both their careers and the nation, and between those two things there is something for everyone in Congress to care about.

That being said, there seems to be no will in Congress to take on the root causes of the current crisis. If the United States is now undergoing the risk of a "long and painful recession" that the President spoke of yesterday evening, how did we get to this point? After all, recessions have been few and far between and relatively mild since 1980. None of them required $700 billion to get us out of them. Will Congress address the defects that got us into this mess, or will they just throw a lot of money at the problem while grandstanding about this or that CEO?.

Well, we know the answer to that question, don’t we? It is easier to just throw money at the problem. However, those who do so should consider this: for all of this year, the powers that be in Washington have attempted to address weakness in the economy by focusing on the financial sector and ignoring the burden of inflation on the overall economy. The Fed continued to lower interest rates in spite of inflationary pressures. That has proven counterproductive. Flushing even more cash in the system at this time only increases inflationary pressures, thus sapping buying power from American consumers and inciting employers to trim costs.

Bail out or no bail out, this may not go well for Main Street.

1 Comments:

Anonymous Lanette said...

It is decisions like this, which not only puts government in the position of socialistic control over major financial institutions, but with largely ignoring the will of the people, that takes us a major step closer to being a kinder, gentler totalitarian nation. I would much rather suffer the problems of failed financial institutions than suffer the inevitable decline of capitalism with this welfare system for the rich and incompetent.

10:07 AM  

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