Well, you say, “I don’t own any stocks — let those greedy monsters on Wall Street suffer.” You may not own any stocks, but your pension fund owned some Lehman Brothers commercial paper and your regional bank held subprime mortgage bonds, which is why you were able refinance your house two years ago. And your local airport was insured by A.I.G., and your local municipality sold municipal bonds on Wall Street to finance your street’s new sewer system, and your local car company depended on the credit markets to finance your auto loan — and now that the credit market has dried up, Wachovia bank went bust and your neighbor lost her secretarial job there.
We’re all connected. As others have pointed out, you can’t save Main Street and punish Wall Street anymore than you can be in a rowboat with someone you hate and think that the leak in the bottom of the boat at his end is not going to sink you, too. The world really is flat. We’re all connected. “Decoupling” is pure fantasy.
I totally understand the resentment against Wall Street titans bringing home $60 million bonuses. But when the credit system is imperiled, as it is now, you have to focus on saving the system, even if it means bailing out people who don’t deserve it. Otherwise, you’re saying: I’m going to hold my breath until that Wall Street fat cat turns blue. But he’s not going to turn blue; you are, or we all are. We have to get this right.
It is good and right to be angry at this predicament, but yelling at Congress to vote down the bill is like yelling at the fire department to let your neighbor's house burn. Odds are very good that you'll find your own house in flames.
The Senate votes today. Call your senator's office and tell them you expect reasonable oversight of the Treasury and equity interest for your investment but that you also expect them to vote YES. If they are getting calls from people who don't like it because they don't understand the economics, their job is to do a better job explaining why it is necessary.
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I understand how frozen credit markets could affect us all. But I am still a bit unconvinced that the fallout would really be so dramatic. Assume the credit freeze does affect us all and the economy slows until banks start to believe the worst is over and start lending again. How long would that take? 1 month? 10 months? 4 years? And is the economy going to shrink by 5%, by 20%, by 50%? No one knows the answers to these questions, but we are expected to trust Bernanke and Paulson (and Bush!) that the answer will be more painful than a dramatic expansion of government powers and $700 billion of taxpayer money. I worry that this has all been rushed through too quickly. If we had been discussing it all for 3 months its one thing. But its only been presented as a crisis requiring super immediate action...
As I've said before we have good reason to be angry and no good reason to trust Bush or his appointees but we can and should trust history some. If the circumstances of the Great Depression are too changed to make their lessons wholly relevant, Nicholas Kristoff points out today that Japan's economic implosion in the early 1990s was due precisely to its legislature failing to act to prevent a banking crisis because it was politically unpopular to bail out the Fat Cats. 19 years later Japan is still a shadow of its 1980s dominance and its stock market is worth 1/3 of its 1989 level. Do we know for certain that things will unfold in exactly this way? No, of course not. When economic markets contract though it can take a long time to reverse direction, and it is not the Fat Cats that suffer first or most.
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