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The problem is that both of you are right
David Brooks is right that the failure to pass the bailout represents a massive failure of American governance and leadership, most of all at the Congressional level. That's true even if you think, for other reasons, that the bailout was a bad idea. (Can any hero be cited in this debacle?) Andrew Sullivan (and others, including myself) was right that early versions of the Paulson plan bypassed checks and balances and gave far too much power to the Executive Branch. So Congressional oversight was needed.
That's the problem, namely that both of these views are right. And this is just one reason, of many to come, why the Paulson plan (whether or not we need it) will not work as promised.
Posted by Tyler Cowen on September 30, 2008 at 10:17 AM in Political Science | Permalink
Comments
David Brooks seems more interested in retaining Republican political dominance in the short term than he is in standing up for core republican values. Fiscal conservatism is the one value I can get on board with on the republican agenda and thus I'm glad the House Republicans had the wherewithal to resist this cramdown. Even if it eventually puts me on the unemployment line (I am a Wall Streeter) and temporarily kills my 401k portfolio.
From Brooks:
"What we need in this situation is authority. Not heavy-handed government regulation, but the steady and powerful hand of some public institutions that can guard against the corrupting influences of sloppy money and then prevent destructive contagions when the credit dries up."
Message to Brooks: quit your whining. It's unbecoming. Almost as unbecoming as your flip-flopping. You can't just have government intervention on demand because your precious IRA took a hit. Man up, bro.
Posted by: meter at Sep 30, 2008 10:28:52 AM
The real political failure was not the farce of a vote, even though that's what everyone is talking about. The real problem was that Paulson presented a 2-page bill with gigantic problems. Congress appropriately rejected that, but then they drafted their own bill which, despite being 100 pages long, kept the same fundamentally flawed premise as the Paulson plan and just bolted on a lot of pointless junk like bankruptcy reform and CEO pay restrictions.
The bill that was voted on yesterday should have been much, much different. We are in the situation we are in because the bill that Congress wrote was approximately as awful as the (high) cost of doing nothing.
Posted by: Robert at Sep 30, 2008 10:53:01 AM
Ask me again when I'm in a breadline, but I'm more than willing to pay the price to make The Streeters (K and Wall) feel the heat.
I don't like your criteria for heroism. Sometimes it's heroic to resist populism, and sometimes it is heroic to resist special interests.
Congressional oversight isn't needed. Congressional oversight is a myth. Exactly what we don't need right now is a grease job pushing more make believe down the chute. I really really like the idea of a people's veto, and this is basically what has informally take place here.
Posted by: Andrew at Sep 30, 2008 10:59:43 AM
Voltaire was quoted as saying - "the art of medicine is to amuse the patient while nature cures the disease." . Is it not possible that the government sideshow may be useful as an amusement while markets sort out some or most of the problems?
Posted by: Rich Berger at Sep 30, 2008 11:04:12 AM
There are no heroes here? Marcy Kaptur and Dennis Kucinich, to name two people I'd never previously thought of as the least bit heroic, come to mind. Can there be any heroes when it comes to basically academic discussions about economics? Um...probably not. Can there be heroes when it comes to standing up against a bill that was patently unconstitutional, a bill that should have frightened lovers of liberty everywhere? You bet your ass.
And no, I'm not a jerk--I understand most of what was said was rhetoric, electioneering, or confusion. But the House is DESIGNED to represent its constituents as closely as possible, and someone still needs to explain why the majority of citizens, apparently quite opposed to the Plan, count for approximately jack in the face of Paulson, the Washington Post, and a slew of academics like Joe Stiglitz, who apparently has resigned his day job to become a full-time talking head.
I've been sort of curious about Tyler's utter silence on the normative issues involved here. Whether we're headed towards recession or not, this was clearly the right thing to do IF you like liberty for anything more than its material benefits. Sorry, but I saw plenty of heroes yesterday, and I think the real worst-case scenario has, for the moment, been averted.
Posted by: Brandon at Sep 30, 2008 11:10:03 AM
Rich Berger,
I had much the same thought. If people can be kept from panicking, the market will in time be able to correctly value the assets. Unfortunately, the government actions so far seem designed to increase rather than decrease the panic.
Posted by: Randy at Sep 30, 2008 11:13:22 AM
Agreed Meter.
The republican pundit class (David Brooks, Wall St. Journal) are really showing their stripes. And are proving that they are what liberals always said they were. Pro big business not pro market.
You cannot both have captialism when you are winning and socialism when you are losing. It is time to take your medicine.
I to am in the finance industry (not mortage related) and will take a hit on my 401k. But taking these losses is what is right and is what is in the long term best interest of the US.
Posted by: eccdogg at Sep 30, 2008 11:13:28 AM
Brandon, well said.
Posted by: Randy at Sep 30, 2008 11:15:10 AM
I <3 gridlock.
Posted by: 8 at Sep 30, 2008 11:16:01 AM
Failure of leadership? It would be a failure of leadership only if the bailout were the right thing to do. But it's by no means clear that it is the right thing to do (1), and is deeply unpopular. When it's not clear what's the right thing to do, how is it a failure of leadership to accede to the will of the people? After all, they're supposed to represent us, aren't they?
(1) In my opinion, the bailout would've been deeply immoral, transferring money from people who refrained from participating in a speculative bubble to the fools who didn't. The Republicans and Democrats who voted against this bill deserve our gratitude for refusing to kowtow to the whining of the financial firms.
Posted by: Christopher Rasch at Sep 30, 2008 11:17:33 AM
1) When only 28% of Americans think the president is doing a good job --- the lowest rating since reliable public polls began --- and 18% say the same about Congress, we are in a renewed burst of populist upsurge . . . a common occurrence in American life whenever Americans in large number think their business, financial, and political elites are acting at the expense of the average American's interests.
2) Studies show that of the 38 Congressmen considered vulnerable in the forthcoming election, 30 voted against the Treasury-adjusted bill. By contrast, those Congressmen not considered vulnerable --- about 197 in each party --- split evenly.
3) Republican values, to use Meter's term?
When the chairman of the SEC --- Chris Cook, who was put there in 2005 because, astonishingly, his predecessor wanted to actually implement the agency's regulatory duties --- admits publicly that the SEC failed in his tenure and that financial markets aren't self-regulating and so starts doing what he's supposed to do very belatedly amid a major financial crisis --- what are these values worth now? (President Bush came to office with a well-known contempt for financial and business regulations. And Chris Cook was a man who shared that contempt.)
Of course there's only the strategy of Andrew Mellon, the most powerful US Secretary of Treasury in the 20th century --- in the Coolidge-Hoover era --- for handling the Great Depression between 1929 when GDP collapsed 30-35% and unemployment reached 25%:
] “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.” Then, too, not to worry about a confidence panic. “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people."
4) And if you want to know what irks Main Street average Americans economically, you might ask --- amid the defense of these values --- how it is that the Census Bureau shows that average male income has risen exactly 2.0% in real terms since 1979. Yes, real terms means adjusted for purchasing power, and hence embraces all those cheaper products from China. (Households with a husband and wife working have risen in income, mainly because women's wages --- starting from a very low level compared to males' --- have gone up 50% in the interval, though they still lag by 33% on an average.
5) More to the point, when the heads of the top 24 hedge funds earned more last year as a financial crisis was building steam than the collective income of the Fortune 500 CEOs, would you not say that we are in a very strange economy?
6) As for the Paulson plan, even amended, it may not do the job, and we should be thinking about extending deposit insurance to all deposits in banks no matter how large for some temporary period. That should get money market funds out of near-bottom Treasuries back into the banking system, no? And it would help to plan a big spending bill for infrastructure, the money paid out to local businesses along the lines of the Eisenhower freeway project. (Has anyone noticed that with a Federal deficit this year of over $800 billion (!), we would be in a serious real decline in GDP and, most likely, a period of deflation.
But then, presumably, the smart economists are convinced that deficit spending never works. It always crowds out private market savings and leads to higher interest rates --- which, for some reason, we haven't been experiencing in this decade of matchless federal deficits.
----
Michael Gordon, AKA, the buggy professor
Posted by: the buggy professor at Sep 30, 2008 11:22:27 AM
I saw alot of people saying that they couldn't understand why most people don't see this as the emergency that all the pundits perceive it to be. I think most people feel if it were a true emergency, perhaps Obama would leave the campaign trail for it. Since Obama doesn't find it that important, I find it difficult to believe it's an emergency, either.
Posted by: carolynp at Sep 30, 2008 11:29:38 AM
To the Muppet that uses the phrase: 'Man up, bro'. Is that what you say to your clients? No wonder Wall Street funded so much junk. You all think you're still at your frat party kegger. Grow up.
Posted by: Noah at Sep 30, 2008 12:20:02 PM
The congressmen and women who voted against the kleptocracy are heroes.
Propaganda:[30 million Americans on the verge of homelessness!!]
If this is true then a socialist would advocate sending a 20k check to the 30 million poorest americans(whether they are renters or not(to avoid the worst aspects of moral hazard). This would get the economy going according to the socialist keynsians...what is the rationale for billionaires becoming the recipients of socialist welfare?
I'm personally for free-markets, but I still prefer socialism over kleptocratic-crony-capitalism-welfare-warfare-nannyism.
Paulson proposed a criminal bill. Then he and the kleptocrats engaged in economic terrorism to try and frighten the country into accepting a new dictatorship. The heroic congressmen refused to pay the ransom demanded and now we are shown that Paulson/Bush and company were bluffing.....yet you still treat their false threats as a unquestionable truth! insane....same MO as patriot act/ I guess you thought we "had to accept torture camps, unlimited domestic wiretapping and spying, massive new martial law provisions nazi style id system and a trillion dollar war to spread democracy"?....ya, the same "bipartisian" criminals were lying to us about all that stuff as well. You people are mouthpieces for a kleptocracy, you are enemies of libertarianism. take your fed and and goldman sachs and shove it up your arses.
Posted by: gabe at Sep 30, 2008 12:21:11 PM
"5) More to the point, when the heads of the top 24 hedge funds earned more last year as a financial crisis was building steam than the collective income of the Fortune 500 CEOs, would you not say that we are in a very strange economy?"
yes, it is a strange economy. The 90% of the best hedge funds were all aware of massive new credit and monetary growth over the last decade and the knock on effects of a devalued dollar....they bet on commodities and made money, while the CEOs, government and MSM all continued the lies that are involved in our phony CPI and repeated the dogma that "fundamentals are strong". You can stop pretending that people don't know that true economic growth does not come from defiict spending and fiat monetary inflation! Read some Rothbard or continue being a joke.
The hedge funds are notdogmatic austrians, but they do study all the schools of thought and they DO KNOW a scam when they see it and they bet accordingly. See Jim Rogers!
Posted by: gabe at Sep 30, 2008 12:28:04 PM
I nominate Rep. Pete Stark for hero here. He actually has banking experience, as founder and CEO, and made a common-sense case against the handout in the House.
Plenty of sound, prudent smaller banks are out there ready to step up and take on more business. Let's not punish them for the big losers' mistakes.
Posted by: Don Marti at Sep 30, 2008 12:33:56 PM
ya, the same "bipartisian" criminals were lying to us about all that stuff as well.
Don't forget the recent cries of "certain death" for hundreds of thousands of people in the Gulf....
Sheesh.
Wolf! Wolf! Wolf!
Wolf! No, really!
Posted by: at Sep 30, 2008 12:42:35 PM
Given the leaders we are discussing, Pelosi, Bush, Reid, McConnell, Obama, McCain, I am grateful that they failed, but not suprised. My preferred leadership would say, "Our system is strong, it can take a beating and that's what we're getting. But government intervention, changing the rules in middle of the game, and trying to prop up the excess credit era are terrible ideas."
Posted by: $9,000,000,000 Write Off at Sep 30, 2008 12:54:08 PM
93% of homeowners are making their mortage payments as promised. Raising our taxes to pay interest on a bailout of Bill Gross/Warren Buffet won't help us continue making our payments.
Needlessly inflating house prices by encouraging more poor people to take out crazy loans to bid up the housing market even higher doesn't help other poor people afford a house, it merely makes them bigger slaves to the big banks.
35% of america owns no house...they need/want lower house prices ....they don't want/need bigger/more loans.
10% of americans truly do value the idea of their kids growing up in a free-market society, we believe our childrens future will be better if we do not hinder them with trillions in debt.
35% of america is socialist. Given their beliefs which I disagree with, they think that we should redistribute wealth to the less fortunate. They DO NOT think that paying big banks ridiculously high prices for MBS constitutes...giving to the poor. I cannot argue with this belief, because they are right.
50% of america has close to zero money in the stock market....a 700 point drop matters zero to them.
many of these groups are overlappign adn a good portion are not. When you put them together you get about 90% of the people saying "no" and that is what we have right now.
The 10% voting yes are the same 105 who insisted we needed to have hundreds of military bases around the world to "promote democracy"...those lying bastards don't actually want democracy as demonstrated by their disdain of 90% of the public.
The 10% want a compliant slave class who payes ever more taxes and interest. The 1%(and their 9% brainwashed/cronies/jackbooted thugs and intellectual puppets) want the 90% to continue living in a fake democracy and to never questiont he false left-right paradigm which enslaves them.
Posted by: Gabe at Sep 30, 2008 12:56:18 PM
I suppose Tyler's heroes are Barney Frank and George Bush?! After all they truly want to "get this thing done and save the merican peepul".
Here is Tyler's next Headline:
"it must be alkida tryion to ruin ar freedoms by opposin this rescue package"
Posted by: Gabe at Sep 30, 2008 1:02:24 PM
"When the chairman of the SEC --- Chris Cook . . ."
My error. Chris Cook, a former Ph.D. student of mine, is a prof at Penn State, and we were exchanging lots of views this week. The SEC Chairman is Chris COX, a former Republican Congressman appointed to that position by President Bush in June 2005. His predecessor, William Donaldson, was forced to retire because --- heavens! --- he tried to do what the SEC is supposed to do and didn't (as Cox confessed last week): he sided with two Democratic Commissioners in trying, against Republican Commissioners' opposition, to regulate hedge funds, mutual funds, and the general structure of financial markets.
Off with his head! the Republicans in Congress urged, and so Donaldson --- maybe the best chairman the SEC ever had (he was a Republican appointed by Bush in 2003) --- retired before the Republicans, defending basic Republican values, could get the guy driven to the guillotine and beheaded on the floor of Congress itself.
The result? Si monumentum requis, circumspice.
--- Michael Gordon, AKA, the buggy prof
Posted by: at Sep 30, 2008 1:53:21 PM
Here is Tyler's next Headline:
"it must be alkida tryion to ruin ar freedoms by opposin this rescue package"
Doubtful. Very doubtful.
Gabe, take a breather.
Posted by: at Sep 30, 2008 1:53:50 PM
It seems that, with regard to the current credit crisis, the attitude is "something needs to be done. This is something. Therefore we must do it!" Why is the justification so light? Various politicians have stated that their goals are to protect taxpayers, provide accountability, and prevent windfall profits by the executives involved in creating this crisis, but the most under emphasized goal of all is "will this plan be increase liquidity better than alternatives while doing at least as good of a job at reducing moral hazard?" It seems to me that bankers are just hoping that the treasury will step in as the greater fool and overpay for toxic securities. If there's no greater fool on the horizon, then banks would make the adjustments they need and write down the value of their portfolios as a market emerges for the distressed debt.
Anyhow, I have yet to see anyone even suggest a house resolution *against* a bailout plan, which would force bankers to get on with it.
Posted by: Mike at Sep 30, 2008 2:45:08 PM
wow, normally fairly sane commenters here, many of you seem unhinged on this issue. why isn't this like the oil companies? that is, you may hate them, but if all the oil dries up, nothing works, we all get crushed (you can't drive to work, food can't be delivered, on and on and on). how are the financial companies any different? how many of you all simply will not get paid, and will have no access to money, if the financial system crashes? do you really want to risk that? pascal, meet wager.
Posted by: dj superflat at Sep 30, 2008 3:41:01 PM
wow, normally fairly sane commenters here, many of you seem unhinged on this issue. why isn't this like the oil companies? that is, you may hate them, but if all the oil dries up, nothing works, we all get crushed (you can't drive to work, food can't be delivered, on and on and on). how are the financial companies any different? how many of you all simply will not get paid, and will have no access to money, if the financial system crashes? do you really want to risk that? pascal, meet wager.
I find it humorous you chose oil for your analogy. Much like those who have been freaking out over "peak oil" for the last century, only to be proved wrong time and time again, this crisis that will "destroy our ecomony" is probably quite similiar. And continued government interference will only make it worse over a longer period.
Also, any empathy I might have ever felt with the neo-cons is now officially dead.
Posted by: apostate at Sep 30, 2008 5:51:32 PM
