Saturday, September 27, 2008
Cure Worse Than Disease
Now Bush is evoking the 72-hour, mushroom-cloud specter if Congress doesn’t immediately borrow seven hundred billion dollars to give free money to rich and craven bankers. According to Mister 27%, it’s the only action standing between economic catastrophe and a rosy American future.
Refusal to enact this legislation may well bring economic meltdown, but mostly to the bankers who caused this mess. Meanwhile, when talking $700 billion there are a lot of scenarios one might pursue to save the economy that don’t involve throwing money at the fat cats.
If millions lose their jobs, well, $700 billion will buy a lot of unemployment insurance, not to mention welfare for those who really need it as opposed to this bailout of the rich. That money will also pay to keep a lot of people in their homes, and with affordable mortgages. In the process of rewriting a lot of real estate loans, the banks would get a lot of money to shore up their finances and large numbers of paid off mortgages would clear a lot of bad and/or deteriorating debt. It would also make it more possible to actually put a value on those toxic mortgage-backed assets that are weighing down the system.
That would be far more likely to stabilize the real estate market than Bush’s giveaway. Bush’s plan, moreover, allows the money to be used to buy all kinds of bad debt from all kinds of institutions, so in the end result might not do much for the property market. Worse, $700 billion is actually a small part of the finance system’s true imbalance. What happens when the first tranche doesn’t work? Throw in another trillion or so?
If credit dries up, well Americans are already up to their necks. They’ve borrowed to excess. What better time to start retiring some of that debt? In the process the banks will have more cash. Bank deposits are insured up to $100,000, so everybody small is covered. If the insurance fund runs out of money, well, there’s always a piece of that $700 billion. If a bunch of banks go under, who cares, others will eventually come to take their place.
Property values may go down, but they are still too high by historical standards and harmful for society as a whole. Better for real estate to be cheaper so that a larger percentage of the population can afford to own.
So what if there is a recession. Americans have been working too hard for years; spending too much money buying too many things; maybe it’s time to slow down and take stock. Unwind, start from scratch, rebuild a smarter, more responsible economy. If people are out of work hire them to upgrade the country’s infrastructure and get cracking on sustainability and restoration of the environment. It’s called shock therapy, the very same wrenching changes the US has forced on many smaller countries that experienced financial problems.
Eighty percent think the country is going in the wrong direction so why put out all that dough only to further the same rotten system that is at the heart of the crisis. Let it sink. Wall Street had its fun, many of its denizens are fabulously wealthy, who cares if it goes under. Many of the activities of the financial institutions who’d be queuing up for the dole are purely speculative and singularly destructive: they are pure gambling and have no redeeming value. This is no different than bailing out a gambler who loses his shirt at the casinos.
It’s a good thing that many Repugs are also questioning Bush’s plan, otherwise the Dems would’ve felt compelled to prostate themselves once again before the worst president in history. They would’ve rushed to comply with his wishes else they take the blame for the doomsday sure to result. Even now there seems to be a certainty (in the punditry) that the bill will pass, after a bit of grumbling, with a bit of tweaking here and there, more or less in the president’s emergency timetable.
Big mistake, but I wouldn’t be a tiny bit surprised.