What just happened in Congress this week? Was the bailout of Wall Street investment firms a necessary evil--or just evil?
1. In this corner, arguing that it needed to happen, are almost all the "experts" in mainstream economics and "leaders" in Washington. (There's a revolving door between the two, so it's hard to tell them apart sometimes.) Bush, Clinton, McCain, Obama, Pelosi, Paulson, and Barney Frank all come down in favor, and the Boston Globe editorialized, "Pass this dreadful bailout"--because they fear the alternative is worse.
It's not a question of which businesses are too big to fail. If it were, I would simply reply as Bernie Sanders does: "If it is too big to fail, it is too big to exist." The horrible possibility that makes all these people (and half of me) support the bailout is that if we do nothing, the loans will simply stop. No new mortgages, school loans, personal loans, no short-term working capital that enables small businesses to tide things over from a bad day to a good one. Many economists think that doing nothing would lead to a deep, long-lasting recession or a replay of the Great Depression.
That's scary. But a part of me wonders whether these "experts" and "leaders" are crying wolf. Some of them are the same people who panicked America into a Global War on Terror ( instead of targeting al-Qaeda in Afghanistan and increaseing commonsense security at home) and into war in Iraq (completely optional, and it has turned out to be a disaster). Others are new voices speaking the same message: be afraid, be very afraid--and give us more power. Why did Secretary of the Treasury Henry Paulson originally ask for absolute power to buy and manage failing banks? Is it the same reason that Bush and Cheney have claimed more and more unreviewable power for the executive branch?
2. Over here, in this corner, are economists like Paul Krugman and James Galbraith. They thought the original Paulson plan was garbage but reluctantly support the compromise that passed on Friday. They are not convinced about the Depression scenario, but they believe government must act, and the bailout is only the first step. Robert Reich argues against them that the Democratic bill is not really any better than the Paulson bill, so they are selling their souls by supporting either one.
3. Sometimes these guys slip over into the third corner of the room, where economist Joseph Stiglitz is standing. Stiglitz reminds us that the basic problem isn't banking: it's housing. Banks made terrible loans because they had to find somewhere to invest the global pool of money. They were looking for payback that's just not sustainable over the long run. Stiglitz sees a need to restore the banks to solvency, but he doesn't want us to get stuck with the bill--and he does want us to control the banks more in the future, through regulation. That makes sense to me, I admit. (But isn't there a crisis that forces us to do something? See David Sirota for reasons to disbelieve.)
4. Over in the fourth corner of the room are people like Chuck Collins of United for a Fair Economy. He agrees with Stiglitz that the rich should pay for their miscalculations and greed, and he offers a practical plan on how to raise the money without soaking the taxpayers. But this is the smaller part of our problems. The bigger part is how to reverse the massive transfer of wealth from the poor and the middle class to the rich that's been going on for the last 30 years.
In other words, there's been a crisis in this country for a long time, especially for poor people and those who have become homeless. It's just now that the rich are noticing it, the government is being called to act. Now that the bailout bill has actually passed, the question of whether or not to act is moot. Our job is to make sure they don't act in a way that makes things worth for most of us--and to put pressure on to make things better. If we're going to spend $700 billion, it had better not be money for nothing.