The "Big Bailout" - a "Historic Swindle"

Friday, September 19, 2008: This is one for the history books, as they say. The response by the US government to the greatest financial crisis in US history risks being too little too late and does not adequately address the root cause. And it does it in a way that continues one of the oldest games in town: Privatize profits and socialize costs. Long live the moral hazard! To put this into historical perspective, take a look at this very useful time-line from 1929 to 2008, aptly titled Deregulating Our Way to Disaster.

To be sure, it is historic:

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

Mr. Schumer added, “History was sort of hanging over it, like this was a moment.”

When Mr. Schumer described the meeting as “somber,” Mr. Dodd cut in. “Somber doesn’t begin to justify the words,” he said. “We have never heard language like this.”

More to the point, according to William Greider, it is on track to end up as a a "historic swindle:"

Let me be clear. The scandal is not that government is acting. The scandal is that government is not acting forcefully enough--using its ultimate emergency powers to take full control of the financial system and impose order on banks, firms and markets. Stop the music, so to speak, instead of allowing individual financiers and traders to take opportunistic moves to save themselves at the expense of the system. The step-by-step rescues that the Federal Reserve and Treasury have executed to date have failed utterly to reverse the flight of investors and banks worldwide from lending or buying in doubtful times. There is no obvious reason to assume this bailout proposal will change their minds, though it will certainly feel good to the financial houses that get to dump their bad paper on the government.

One might think that those who contributed to the crisis and benefited the most all along, should bear the cost of the recovery. But instead of the investors and speculators, the taxpayers will pay - business as usual.

How Obama and McCain manage to be perceived in this crisis will likely be the most important factor deciding this election. So far, it seems to favor Obama.

In any case, the consequences of this mega-bailout are disastrous. It will make it virtually impossible to finance a progressive agenda:

As for costs, he [Henry Paulson] said no more than it will involve a significant investment of taxpayer dollars. A better adjective than "significant" might be "staggering." The economic tar pit is so deep and so sticky it may be necessary to sacrifice wildlife programs, preschool education and scientific research. Even without knowing the numbers, we can kiss health insurance goodbye. If and when Obama gets in, he will discover the cupboard is bare.