Bailout

Bailout

I’m sure everyone knows about this already:

“The Bush administration has proposed granting unfettered authority for the Treasury Department to buy up to $700 billion in distressed mortgage-related assets from private firms as part of a program that Treasury Secretary Henry Paulson said “has to work.””

Some reactions: Dean Baker, Paul Krugman (1, 2, 3), CalculatedRisk, Douglas Elmendorf, Ed Paisley, Henry Blodget, Yves Smith, Mish, Willem Buiter, Luigi Zingales, William Greider, Sebastian Mallaby, Robert Reich.

Obama has called the proposal “a concept with a staggering price tag, not a plan”, and has laid out the principles that he thinks should govern a bailout here. McCain was noncommittal on the administration’s proposal, but criticized Obama.

Deciding what to do about the present financial crisis is beyond anything remotely resembling my expertise. However, like Steve Benen, I’ve been reading around, and I can’t find a single decent economist who likes the plan. That scares me, since I expect that the political dynamics will go something like this: Paulson has proposed a plan; not to accept it would deeply damage confidence in the markets and make things much worse, regardless of whether it’s a good plan or not; therefore, it will be passed. I hope the Democrats try to get some decent regulation and structural reform for all that money.

In the meantime, I do have a few other reactions:

First: throughout all this, I’ve been torn between believing in market discipline and wanting to avoid moral hazard on the one hand, and thinking that of course that commitment flies out the window if we’re seriously threatened with economic collapse, on the other. But it’s worth remembering that we could have avoided having to choose between these unfortunate options. All we needed to do was have people in government who believed in good regulation.

Second: if anyone ever tells me that Republicans are the party of fiscal discipline ever again, I will either dissolve in laughter or bite their heads off. I don’t know which. You have been warned.

Third: in particular, if any Republican ever tells me that a hundred million or so is just too much to pay to make sure that kids have health insurance, I will definitely bite his or her head off.

Fourth: I do not want to hear people tell me that regulation cripples the economy, unless they are willing to admit that a lack of regulation can also cripple the economy. Not ever. I don’t understand why anyone is so much as tempted to think that “regulation” is good or bad, as a whole: to me, that’s like being for or against “things” or “people”. Some regulations are good, some are bad; obviously, we want people in government who can tell the difference, and implement regulatory systems that work well. However, altogether too many of my fellow citizens were willing to listen to ideologues, and now we all get to pay for their mistakes.

Fifth: if Obama wins, he and the Democrats will, in all probability, have to be the grownups once again. Reagan spent us blind; Clinton got us out of debt again. Now Bush has spent us even blinder, and we will be tempted, yet again, to put our ideas and aspirations on hold for the sake of the country.

I would like to hear one Republican, just once, acknowledge this fact.

I should also say: as people go, I am pretty willing to step up and be a grownup, even when other people aren’t. But I am just about at the end of my rope. What that means, in practical terms, is that while early in the 90s I was willing to put various plans on hold for the sake of the country and its fiscal stability, I now think: Democrats’ willingness to be sane and fiscally responsible just enables the Republicans. I am not willing to play that game. So don’t count on me to think that universal health insurance is something we just can’t afford any more.

Republican fiscal conservatives: if you’ve lost me, you’ve lost a whole lot of people. Because this is not a way of thinking that comes naturally to me at all. So step up to the plate and reform your party. You can’t count on us to do your dirty work.

Sixth: Paulson seems to me to be one of the better members of this administration. (A low bar, I know.) But he still answers to Bush and Cheney. They have already abused our trust too often. There’s a price for that: not being trusted when you really need it. It’s not Paulson’s fault. Too bad.

Last, and certainly least: I’m hilzoy, and I approve this message:

“I also find myself drawn to provisions that would serve no useful purpose except to insult the industry, like requiring the CEOs, CFOs and the chair of the board of any entity that sells mortgage related securities to the Treasury Department to certify that they have completed an approved course in credit counseling. That is now required of consumers filing bankruptcy to make sure they feel properly humiliated for being head over heels in debt, although most lost control of their finances because of a serious illness in the family. That would just be petty and childish, and completely in character for me.”

I’ve always been partial to the idea of using the stocks for special occasions, when both exemplary punishment and the opportunity for ordinary citizens to tell lawbreakers what they think of them seem appropriate. Now seems like a pretty good time.