History is Happening Now

ANOTHER UPDATE: (Wed., 6 pm) Anybody on the left who sees this economic crisis — and the proposed $700 billion bailout plan now being debated in Congress – as an opportunity to wage political warfare should know that right-wingers are jumping on the same bandwagon:

Filling in last night for Keith Olbermann on “Countdown,” MSNBC’s David Schuster reported:

On a Republican blog, one consultant is urging Republicans in tight races to vote against the bailout, and attack Democrats who vote for it. Quote: “God himself couldn’t have given rank-and-file Republicans a better opportunity to create political space between themselves and the administration. Let this be the political establishment, Bush Republicans in the White House plus Democrats in Congress, saddling the taxpayers with hundreds of billions in debt – more than the Iraq War, conjured up in a single weekend, and enabled by Pelosi, by the way – while principled Republicans say no, and go to the country with a stinging indictment of the majority in Congress. A bailout may be inevitable, but so too can be the political benefit for Congressional Republicans if played correctly.” This open call for Republicans to vote based based not on, say, country first, coming from PatrickRuffini, a former RNC staffer…

More info about Ruffini’s advice to Republicans is available on The Huffington Post.

I’m sure they are asking themselves the same question Adrianna Huffington is asking Dems to ask ourselves: “How dumb, or frightened, do they think we are?”

I’m frightened when I read this in the Financial Times:

As officials struggled to address the mounting political objections, Ben Bernanke, Federal Reserve chairman, told Congress turmoil in the markets could lead to greater economic pain. Peter Orszag, head of the Congressional Budget Office, warned lawmakers of possible “chaos” if Congress did nothing. “You would have a financial market meltdown that would cause very severe dislocations  . . . maybe on the magnitude of the Great Depression.”

ANOTHER UPDATE: I’m getting nervous that with every passing day, the likelihood increases that Congress won’t pass a necessary bailout of the financial markets.

Consider this nugget from a New York Times article on the latest from Capital Hill:

“We’re anxious to act, and to act quickly, to restore confidence in the markets and in our country,” Senator Mitch McConnell of Kentucky, the Republican leader, said after the meeting.

Democrats, however, grew concerned that a lack of Republican support, particularly in the House, could leave them in an undesired alliance with the Bush administration.

Mr. Reid, at a news conference, said Democrats were waiting for Republicans to signal that they had enough votes to support the bailout. “We have all heard what went on over in the House today,” Mr. Reid said. “It was a scene of disarray. So we need the Republicans to start producing some votes for us.”

Or this from the New York Times’ DealBook blog:

Even before the proposal was formally presented over the weekend, Senator Jim Bunning, Republican of Kentucky, had declared that “the free market for all intents and purposes is deal in America.”

He echoed those thoughts in Tuesday’s hearing, declaring that Mr. Paulson’s plan was “financial socialism” and “un-American.”

Or this from a related Politico story:

“I don’t think a single call to my office on this proposal has been positive,” Sen. Sherrod Brown (D-Ohio) told Paulson at the Banking committee hearing. Even Democratic Sen. Chuck Schumer, a New Yorker with close ties to Wall Street, urged Paulson to consider scaling back the $700 billion request or accepting an arrangement where the money could become available in tranches after the plan has had time to prove itself.

If Democrats spend the latter half of this week fighting Republicans in Congress to pass a plan originally put forward by the Bush Administration — it’ll be bad, in my view. Very bad.

UPDATE: According to The Washington Post, It seems like nobody on the left or the right likes Treasury Secretary Hank Paulson’s $700 billion economic bailout plan — except for Paulson and Fed Chairman Ben Bernanke (and Dick Cheney).

Anybody want to speculate about what will happen if the plan fails?  

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It seems we on the left are nearly unanimous in our opposition to the Paulson bailout plan.

Arianna Huffington calls it “a pricey debacle,” says the plan will “do nothing for American families,” warns Congress against being “bull-rushed into disasterous public policy,” and asks “How dumb, or frightened, do they think we are?”

Matthew Yglesias calls it “a terrible policy.”

And Paul Krugman says the plan “doesn’t make sense.”

Even some Republicans are getting involved, as Robert Kutner writes:

The ranking Republican on the Senate Banking Committee, Richard Shelby, appearing with Frank (on CBS’s Face the Nation), sounded if anything even more radical than Frank, accusing Paulson of “lurching from crisis to crisis” and helping Wall Street, but doing nothing for the homeowner. Shelby, whose support is crucial to the plan, later issued a written statement that he “remains at this point unconvinced” of the proposal’s merits.

Kuttner himself writes:

No self-respecting legislator should vote for this lopsided plan in its present form, and a bracing debate should shed light on what the two parties really stand for.

So what happens when the plan remains unchanged and goes to a vote? Do we agree with Kuttner? Should we urge our elected leaders to vote it down? Should we expect Obama to vote against it, in that case?

And why are we all — Krugman, Huffington, Yglesias and Kuttner, that is – talking about the Paulson plan, anyway? Isn’t Congress run by Democrats?

For an indication of what’s at stake, please read this relevant article in the New York Times.

New York Times columnist Paul Krugman has a lot of fans on the left who seem to regard his views as gospel when it comes to economic issues – such as the $700 billion bailout of the financial industry put forward by Treasury Secretary Hank Paulson.

Opposition to this plan from Krugman and others has provided political cover for politicians in Washington, allowing them to voice their own objections. We can only hope that this push-back from the plan’s critics will compel Congress and the White House to improve the plan before it passes.

But if opposition to the plan causes it to die, and the result is catastrophe for the American economy, I’ll be angry at Krugman for feeding the fires of self-serving political posturing and obstructionism. My anger is based, in part, on some rather stupid and manipulative aspects of his recent column on this issue.

Let’s examine how this column, from Sept. 21, 2008, begins:

Some skeptics are calling Henry Paulson’s $700 billion rescue plan for the U.S. financial system “cash for trash.” Others are calling the proposed legislation the Authorization for Use of Financial Force, after the Authorization for Use of Military Force, the infamous bill that gave the Bush administration the green light to invade Iraq.

There’s justice in the gibes.

Everyone agrees that something major must be done. But Mr. Paulson is demanding extraordinary power for himself — and for his successor — to deploy taxpayers’ money on behalf of a plan that, as far as I can see, doesn’t make sense.

The Paulson plan calls for the federal government to buy up $700 billion worth of troubled assets, mainly mortgage-backed securities. How does this resolve the crisis?

Well, it might — might — break the vicious circle of deleveraging, step 4 in my capsule description. Even that isn’t clear: the prices of many assets, not just those the Treasury proposes to buy, are under pressure. And even if the vicious circle is limited, the financial system will still be crippled by inadequate capital.

Or rather, it will be crippled by inadequate capital unless the federal government hugely overpays for the assets it buys, giving financial firms — and their stockholders and executives — a giant windfall at taxpayer expense. Did I mention that I’m not happy with this plan?

It may be that the federal government will hugely overpay for the assets it buys. That’s why it’s called a bailout. The low market value of these assets is the problem, isn’t it? — So obviously a bailout would require paying more for these assets than market value. It may also be that Paulson’s plan will provide the stockholders and executives of financial firms with giant windfalls at taxpayer expense. But that has no bearing whatsoever on the central point Krugman claims he’s making — that the plan doesn’t make sense. If the purpose of this plan were to punish those responsible for the current crisis, then I agree that it would not make sense to buy their bad debt. But if the purpose of this plan is to stabilize the financial industry for the sake of the overall economy — and in fact, it is — then the plan is probably going to benefit financial firms. It wouldn’t make sense to expect anything different.

Krugman uses words such as “logic” and “sense” to give the impression that his arguments are grounded in his understanding of the economy. I have no doubt that Krugman understands the economy better than I do — but the arguments he uses are moral arguments, not economic ones. When he refers to “a giant windfall at taxpayer expense,” he’s trying to draw attention to injustice, pure and simple.

Here’s another example of Krugman disguising a moral argument with economic-sounding language:

The logic of the crisis seems to call for an intervention, not at step 4, but at step 2: the financial system needs more capital. And if the government is going to provide capital to financial firms, it should get what people who provide capital are entitled to — a share in ownership, so that all the gains if the rescue plan works don’t go to the people who made the mess in the first place.

When Krugman says the government “should get what people who provide capital are entitled to,” the “should” represents a moral imperative rather than an economic imperative. His concern isn’t that the plan won’t work, but only, once again, that it is unjust. He’s worried that “the gains” will “go to the people who made the mess in the first place.”

It terrifies me that the federal government might be prevented from doing what is necessary to protect millions of American jobs because of moral concerns about rewarding corporate executives. Again: there will be plenty of time to punish the people responsible for creating this mess, but we need to get out of the mess first. That’s according to Democrats I respect, including Senator Christopher Dodd and Congressman Barney Frank.

But Krugman is fueling the idea that we should be afraid of what would happen if the plan passes. Here’s how he ends his column:

But I’d urge Congress to pause for a minute, take a deep breath, and try to seriously rework the structure of the plan, making it a plan that addresses the real problem. Don’t let yourself be railroaded — if this plan goes through in anything like its current form, we’ll all be very sorry in the not-too-distant future.

Again, Krugman is saying this bailout plan won’t address the real problem — another lie, as is clear if you read the rest of the column. The problem is that financial firms hold too much bad paper, which has the potential to cause a severe tightening of credit. So how does the bailout plan, which would enable the government to buy this debt, not address the real problem? Krugman’s argument doesn’t make any sense. Perhaps Krugman is saying the bailout plan should address the crisis’ root causes — but that can be done over the course of the next several years, after a newly-elected slate of politicians have had time to study the situation more closely.

Here’s a question for Krugman fans. When Krugman writes that if the current proposal is passed, we’ll “all be very sorry in the not-too-distant future,” does anybody have the faintest clue what he is talking about? Is Krugman merely saying the injustice of rewarding corporate executives for their misbehavior will offend our moral sensibilities? Is he actually arguing that passing this plan would have a negative economic impact?

This economic catastrophe came about because of stupid Republican ideology. Smart Democratic ideology — in other words, a “big government” intervention — can rescue the country from the mess the stupid Republicans have wrought. Over time, this whole sorry affair will provide plenty of powerful talking points that will empower Democrats to improve the rules and regulations by which our economy is run. And for those who hate “the trash,” there will be plenty of time for appropriate retribution.

But first, we have to save the economy. So please take off your self-righteous hat and put on your economist hat, Mr. Krugman — and stop treating me in ways that suggest you think I care more about hating Bush and hating executives than I care about this country’s prosperity.