Remember the Wall Street Bailouts? I think most people have forgotten this bit of recent economic history. Considering the short memory in DC, I am quite positive they have. A new report brought it back to my mind, though
A new study released today by the Center for Media and Democracy (CMD) shows that, despite rosy statements about the bailout’s impending successful conclusion from federal government officials, $1.5 trillion of the $4.8 trillion in federal bailout funds are still outstanding.
First, I would note that this 1.5 trillion dollars would have been helpful to avoid our recent debt ceiling brinkmanship.
Second, our economic recovery actions cannot seemingly gain any real traction and this baffles most TV talking-heads. I have not heard anyone consider whether the Bush-Paulson Wall St. bailouts of 2008 may be the cause of our current stagflationary state.
After all, isn’t the current economic malaise exactly what the experts predicted would occur? Didn’t they predict that the bailouts could make things worse? Does the impotence of fiscal and monetary stimulus not comport with the economists predictions ? Remember the economists’ view of the Wall Street Bailouts of 2008: “it’s not the disease that will kill us but the cure.”
In hind-sight, perhaps Congress should have, at least, consulted professional economists or invited some to present their views at the Congressional hearings on the Wall St. “rescue plan.
“Four Hundred (400) economists told Congress by letter that “[i]f the plan is enacted, its effects will be with us for a generation.” There was almost universal opposition from economists to the bailout. (See here also.)
Was it not advised that Bush/Paulson Bailouts could push the economy into a long-term, zombie-like state?
Japan’s experience in the 1990s is a cautionary example of the peril of propping up banks after a real estate boom ends. The Japanese government helped keep many troubled banks afloat, hoping to avoid the pain of bank failures, only to extend the economic downturn as consumer spending and job growth fell.
The Japanese slump continued for many years, ending only a few years ago, a stretch of economic stagnation known as Japan’s lost decade.
“The lesson from Japan is that tough love for the banks is what’s needed,” said Kenneth Rogoff, an economist at Harvard.
Chris Low, chief economist with FTN Financial Group in New York, said that 10 per cent unemployment is “almost inevitable.” “I think it’s going to get real ugly,” Low said. “We’re looking at economic pain for two or three years.”
To quote Dean Baker of the Center for Economic and Policy Research at the time:
Suppose the Paulson plan goes through. It is virtually certain that the economy will weaken further and the number of foreclosures and people without jobs will continue to rise. . . In this sense it is hard to view supporting a bad bailout package as the responsible course of action. While the bailout may lesson a presumably small risk of financial breakdown, it could have the effect of making the recession much longer and more painful than necessary. This would not be responsible.
Those votes in October 2008 had consequences; Main St. is very well versed now in those consequences. Our families, communities, and businesses are reaping the fruit of October 2008. You cannot just ignore the cause or pretend it never happened.
So it frustrates me to hear my Congressman Mike Rogers now rail against “excessive spending” and blame others for current economic problems considering he voted for the Wall Street bailouts, not once but twice.
Explaining my opposition to Rogers’ candidacy and my opposition to the bailouts, I wrote in the Clay Times -Journal on October 8, 2008:
As a Congressman, he has been anything but conservative or Constitutionally faithful. In the past decade, the term “conservative Republican” has been fundamentally redefined beyond all former recognition.
The current federal debt is $10.25 trillion dollars ($10,250,000,000,000.00) not including the other$55 trillion worth of unfunded liabilities in Medicaid, Medicare, and Social Security. Proverbs teaches that the borrower becomes the lender’s slave; our “lenders” are primarily Asian central banks and oil-exporting countries. Congressman Rogers failed to reduce this burden; instead, it grew by $4.5 trillion or seventy-one percent (71%) since 2000.
Who pays this debt? Our children, grandchildren and even great-grandchildren will. Each child born today is automatically indebted to the tune of $45,000.00 in federal debt alone. Proverbs says a “good man leaves an inheritance for his childrens’ children;” Solomon did not have this kind of “inheritance” in mind.
Now, over and above the other insane spending, corporate welfare, and tax-cuts, Mike Rogers voted for the most radical initiative of my lifetime: a trillion-dollar Wall Street bailout. A week before this, no one ever mentioned such, but Congress approved the bill a week after its proposal. He tacitly approved the buyout of Bear Stearns in March ($29 billion), nationalization of an insurance conglomerate, AIG ($85 billion), and repossession of Freddie Mac/Fannie Mae ($200 billion).
The Congressman defends that “the Great Depression was the hard lesson of inaction.” On the contrary, following the excesses of the Roaring 20’s, then-president Hoover engaged in an aggressive “intervention” of artificial prices, credit expansion, propping up of weak firms, and increased governmental spending. Rogers’ and Hoover’s policies and rhetoric are eerily similar. Hoover said “we might have done nothing. . . .Instead we . . .put into action. . . the most gigantic program of economic defense and counterattack ever evolved in the history of the Republic . . .” Hoover’s actions, not inaction, caused a necessary correction to spiral the economy into the Great Depression. Congressman Rogers should reconsider the lessons learned from Herbert Hoover.
Do not let them fool you by blaming the “free-market” either; the natural free market did not produce these Wall Street dollar-daddies. On the contrary, the truly free market encourages prudent and modest risks. Our current crisis should be largely blamed on Congress’ fiscal irresponsibility (i.e. massive budget deficits) and the Federal Reserve’s inflationary monetary policy (“easy credit”) which caused a glut of drug-like, addiction-forming “paper money” to flow into the market causing the greatest bubble in history. Flush with new wealth on paper, common people, businesses, and local governments were tricked by this unnatural distortion into making unwise purchases and investments. This intervention only exacerbates, delays, and lengthens the severity of pain when the “high” wears off.
Accordingly, these Wall Street yahoos are creatures of Congress’ own making; they are not naturally occurring. Congress created a Jurassic Park of crony capitalists. While Congress’ intentions, like the billionaire in Jurrasic Park, were benign; it is now horrified at the monsters its policies created. Now Congress tries to contain these financial Velociraptors using the same manipulations which created them.
Do not get me wrong; I do not suggest the alternative is a walk in the park. Our Wall Street “friends” deserve to pay; unfortunately, we would all suffer pain, temporarily, during the correction. Like a drug addict after going dry, he writhes in pain; however, such temporary agony is necessary to “get clean” for long-term health and well-being. During the adjustment, everyone would have paid for this government-induced recklessness. After the dross purged and more prudent hands assumed the valuable; we would have come through more healthy. Congress wanted to avoid this pain and asked for another “hit” from its “source.”
Real leadership would have sought to aggressively address the root cause by cutting back on further borrowing, unnecessary spending, easy credit and wasteful excesses. Congress deformed not just authentic prosperity in the near future but for the next fifty years. The market will be plagued with higher unemployment, rising costs of goods: long-term stagflation. In addition, Congress has directed us toward domination by a few huge universal banks and a small number of gigantic corporations, all of them “too big to fail,” under the careful tutelage of a governmental Leviathon dominated by these same cartels.
Does Congress not recognize this vote penalizes prudence, care and thrift and encourages further greed, seduction, waste, and ruin by the palaces of crony capitalism? Or does it agree with John Maynard Keynes, the father of this type economics, when he stated: “in the long run, we are all dead.”
While intentions to protect Main Street are good, Congress has failed to be the defender for the little people: small businesses, family farms, and local communities. Instead it has only transferred wealth from low- and middle-classes to pockets of those who know how to work the system: corporate fat-cats, Wall Street executives , and D.C. bureaucrats.
I think the economists were right; the votes of October 2008 have disabled us us for a generation, made the recession longer and more painful than necessary, and propelled us into long-term stagnation, a possible “lost decades.” It is exactly what they predicted.
I will respect our elected officials such as Rep. Mike Rogers (and President Obama also, for that matter) if they will acknowledge that their actions over the past decade and particularly their votes in 2008 are the major contributing cause for the current state of the economy today. Until then, I hope they cease hypocritically demogoguing the “spending” issue.