Thursday, September 25, 2008

Ten Key Points In The Bush Banking Catastrophe

Here are some key points that we all need to remember as constituents get steamed, politics gets played, the economy sours, and everyone is looking for someone to blame:

1. We aren't going to be simply throwing 700 billion into the toilet. We're buying assets with it. Those assets are probably worth something. In fact, most of that money will never be debt. In fact, the taxpayer could end up MAKING money on this deal (as they did in the S&L crisis) if everyone keeps their heads and we get the economy back on track relatively quickly (which - let's all pray - is hopefully still possible). So talk about the "exploding debt" and giving away your money is a bit premature.

2. Other countries (Sweden and Japan) have done something similar to restore confidence under similar banking crises. So this isn't unprecedented or completely thrown to the wind (though the amount requested is).

3. Paulson's plan was egregiously light on specifics and heavy on authoritarian hand of the Bush administration. Bush lost all credibility long ago, and Paulson's plan was barely credible. So not only did they let this problem grow to once-in-a-century crisis proportions, they also badly mishandled the crisis. This crisis could have been much less dramatic had it been handled by a competent administration and a realistic proposal to start with.

4. Just because Bush has no credibility doesn't mean this isn't a real crisis. This is a real crisis.

5. No one wants to reward bankers in this deal. Believe me, the FBI is on the case - we'll see bankers go to jail. But a case will take years to put together. First, in a matter of days, we have to avoid an economic meltdown.

6. This deal wouldn't have - or won't have - (whatever the tense might be at the moment) happened without McCain going to Washington to "own" the deal along with Obama. Let's remember that when we start bashing McCain for playing politics. But as Obama says, being President means being able to do more than one thing at the same time. He can't broker a deal and have a debate at the same time? Brotha, please. (UPDATE: Scratch this point. Looks like McCain went to Washington in bad faith after all.)

7. Bi-partisan consensus is a key aspect of the deal. Lenders won't trust any deal that doesn't have full support of all three of the key political players here (Bush, Republicans, and Democrats). It's terrible timing since Bush is the lamest of lame ducks and Obama and McCain are engaged in a political dogfight to surpass all dogfights. But unfortunately, if any one of these legs falls, the deal won't work, because confidence won't be restored. So nitpicking the deal to death or playing save-my-ass politics with it (as some coalition of Republicans seem to want to do) is self-defeating.

8. Did I say this is serious? It's serious. Every day of delay increases the number of businesses that will fail, the number of home foreclosures, the number of people without jobs, the amount that your home and savings values will fall. Why? Because credit is frozen right now, and nothing in this country happens without credit: workers don't get paid, homes don't get sold, goods don't get bought, people soon can't pay their bills. Is this part of an artificial bubble economy that's collapsing. Hell yes. But how do you want this bubble to collapse: slowly and in a somewhat controlled fashion, in such as way that Americans can adjust over the next decade to their decreasing standard of living and lesser importance in the world, or all at once, so that everyone is out of work and on the street in a matter of months, and the U.S. and the world is thrown into economic and political chaos? Those are our options: pick one.

9. Just because we have a deal this weekend, that's not the end of the story. Congress can go on to regulate the banking system, punish executives, impeach Bush, whatever else makes everyone feel better. But if something gets passed NOW and Paulson can get started injecting liquidity into the system, we have a potential treatment for our dying economy - which is the ball everyone needs to keep their eye on.

10. Will the treatment work? Can we save the economy? Who knows. There's no guarantee. The only thing I think you could safely guarantee is that if there's no deal, you'd better get your winter coat, gloves, and bread box ready for that bread line you'll be standing in this winter....

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