First we allowed the mortgage companies and banks to become massive oligarchies. Then we excused the shadow banking system of investment banks and hedge funds from the normal regulations other banks are subject to because we believed that the consequences of competitive (read greedy) behavior are natural and justified. Then these banks overextended themselves and by their oligarchic might are now in a position to seriously threaten the stability of the US and global economic system. So now the federal government must step in to buy up their rotten assets at a price higher than what they are worth, wait and hope that these prices go back up before they are returned to the market.
Secretary Paulson's solution is no more flawed than the excesses that brought us to where we are. It is surely argument by fait accompli, but it's central thrust is also compelling. The problem is no longer illiquidity but insolvency, and because some banks are (woefully) "too big to fail," government probably needs to step in. Yes, a bail-out socializes losses, but that is exactly the point of a bail-out. When in crisis, we don't point fingers, we find a solution first. Wall Street may be putting a knife to Main Street, but in the end Mr Jone's savings does depend on what happens to the Dow Jones.
Democrats are not the ones trying to torpedo the plan, now improved with some oversight provisions. They're OK with government intervention and regulation, of course. They even have the votes, but they don't want to go without consensus. It's rank-and-file Republicans who are crying foul and refusing to tow the presidential line. What a far cry from those halycon days when President Bush could snap his fingers and his party would dance for him. But right now, hard-headed ideologues are back at their game. Republican defectors in congress do not want taxpayers to be saddled with bad assets, and they certainly don't want government to own equities in these hitherto private banks. Why? Because they don't want liberals to have any excuse to rebuild the size and scope of the federal government they have so assiduously sought to dismantle in the last 30 years. Government is just bad news, for these folks, come what may. But experience has finally tampered George Bush; hard ideologue he is no more. "I'm a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances, " he told the nation on Wednesday night. One thing is for sure - a house divided cannot stand. The hegemonic days of neo-liberalism are coming to a close. Like it or not, regulation is back in vogue - just listen to the presidential candidates.
Let's talk politics. What's John McCain's potential value-add here? Bring Republicans back on board with the president? That won't do, for it would brand him as a lackey of the Bush team. It's not clear that he could even if he wanted to. He's always been the maverick to cross the aisle to the other side (be it to Kennedy or to Feingold) and not been the best at rallying his own crowd. That's what a maverick means - a good defector but not a a good uniter (of his base)- a campaign slogan Obama people could exploit. In any case, McCain's official position now is that he has no position. If he isn't going to take a position, surely he could have been remained indifferent while on the campaign trail?
As McCain has left the stump, Joe Biden and congresssional Democrats have continued on the attack. He is taking a gamble that the rate of deterioration of his poll numbers that probably would have happened anyway this week would have been steeper had he remained on the campaign than if he had taken a time out. I'm not sure this gamble will prove any wiser than his previous one, Palin.