The eight years of the Bush administration have been, if nothing else, full of events of significance and import. Who would have thought that the last hundred days might qualify as the most important period in his presidency? What is the opposite of a lame duck? A healthy duck? A super duck? Bush is going out the only way he knows how to, putting congress between a rock and a hard place, and squeezing out yet more authority for the presidency and the unified executive, with the Democrats once again faced with the challenge of being seen as either partisan spoilsports or dupes. Finally after many election cycles of talking about it, we finally have an October (okay, a late September) Surprise, and both presidential candidates are, well, surprised. Who would ever have thought that a fundamental crisis in capitalism could so help the capitalists? But that is perhaps the basic problem with this $700 billion bailout; when capitalism fails, and you cannot conceive of any alternative, the only thing you can do is help the capitalists.
And Bush ends his administration being compared to the president he is probably least like, FDR. So what New Deal analogy do you want to make? Shall I liken the toxic collateralized mortgage securities bailout to, the NRA? The RFC? The HOLC? The TVA? There really doesn’t seem to anything quite like the current bailout in Roosevelt’s armamentarium of social programs. Perhaps the AAA is the closest analogy, where the government intervened with a complex series of price supports to keep farmers down on the farm; but of course now instead of supporting dirt poor farmers, we are providing financial support to filthy rich bankers. The principle is the same, I suppose. And like the NRA, the worst of the New Deal programs, its basic purpose seems to be to “stabilize” the existing structure of American industry, with all of its inequalities and inequities. This seems fundamentally misconceived; the goal of the government should be to keep lending and credit available to all who need it; it should not be keep in place the bankers and the current banking system. The basic problem seems to be that, to coin a phrase, in for a penny, in for a pound. You can’t half takeover the banking system. Banking companies should be compelled to participate in the bailout, whether they want to or not, and there should be general limits on compensation. Nationalize the banking system. Look the whole point of capitalism is that you have to pay for your failures. Socialism is nature's way of saying that capitalism has failed and visa versa.)
Or alternatively, follow the advice of some conservatives who say the crisis talk is overblown, and let the market take its own course, with a much smaller intervention for some financial institutions that really need the help. I do think that the market can largely sort this out, and the $700 billion (and a renationalized Freddy and Fannie) should be used, like the TVA, in creating a government funding alternative to the banking system that is superior to the private system. And lets spend much more on creating limited equity cooperatives and superior public housing so families would not feel compelled to spend above their heads to purchase a home.
I am increasingly skeptical of whether this plan is needed, and whether the situation is really as dire as it is being painted by Paulson. Democrats need to stand their ground, and take their time. At an absolute minimum, the stance has to be, as Krugman says “no equity stake, no deal.” The ultimate lesson of the New Deal is, I think, that massive government intervention in the economy without a concomitant massive restructuring of the economy is doomed to failure. We need to take over the banks, in whole or in part. (Oh, and by the way, if John McCain doesn’t vote for the final package, neither should any Democrat.) What is at stake is not merely the future of the economy, but our future as a democracy.