Between Iraq and a Hard Place Redux - the Wall Street Bailout

Privatized Profits, Socialized Losses.

A growing catchphrase that was heretofore expressed in the present progressive will soon be past. It would a monumental embarrassment for the current administration and its precious ideology, except to the extent that the result is likely to be precisely what they want: ever less independence for the United States of America, where we must submit ourselves more than ever to the international community. And by the way, 'they' in this context means corrupt politicians of either party. Republicans and Democrats are ultimately two sides of the same global coin.

On ABC's "This Week with George Stephanopolous" we saw a seminal interview with United States Treasury secretary Hank Paulson. "Good to be here," he said, but the look on his face was wan. His voice was as hoarse as it was measured, his hands shook as he gestured, and his tongue flopped around as he licked his lips.

To say we have a serious problem is more than a bit of an understatement. And by 'we' I don't mean just America; the economic problem is global because of today's interconnectedness. In my view this new economic crisis will give the lock to the Democrats for the upcoming Presidential election. The solution is estimated to cost more than twice the entire cost to date of the Iraq war, and let us not forget that the ratio of actual to estimated cost of the S&L crisis in the 1980s was approximately 3:1. Meanwhile John McCain and his staff, including primary economics adviser Phil Gramm Ph.D., are lords of deregulation. The winds are blowing hard against John McCain in a long-term sense, and no amount of pretending to be someone he's not can save his campaign at this point; consider the Palin Bounce thoroughly de-elasticized.

As Stephanopolous put it, the era of big government is back, and according to his anchor guest George Will, the Paulson administration was inaugurated today. Or is it Emperor Paulson? The numbers behind this bailout are beyond striking:

$700 Billion - Purchase "opaque mortgage assets"
$85 Billion - Bridge loan to AIG
$200 Billion - Takeover of Fannie Mae and Freddie Mac
$300 Billion - FHA loan insurance (The Housing and Economic Recovery Act of 2008)
$29 Billion - Subsidies to JP Morgan for the takeover of Bear Stearns
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$1.3 Trillion - Total estimated top-line cost to the taxpayer, and more than twice the roughly $500B spent so far in Iraq.

Note that this number does not include what the government will eventually recoup from sales of these assets after they are no longer quite as distressed. But as it looks today, these bailouts do not require the financial industry and its executives to return any of its ill-gotten, predatory gains or provide the taxpayers with any direct assistance. Just more scare tactics. Either do what we say, even though it's our fault we got here, or else you die. It's regrettable, Paulson says, but for whom?

It's about protecting the American people, the secretary says. And he promises that he has spent a lot of time before this crisis on a regulatory blueprint to guide the path to reforms, which he expects to be boiled down and implemented by future administrations, because this is a problem so big it's going to be on our plate for decades to come. It shows that the housing bubble truly was far more enormous than the tech bubble. Although I sense some inherent reasonableness in Paulson's position and approach, it is insulting to hear his cold rejection of the little guy who lacks the financial resources and skills to game the system such that they get to keep their winnings (their homes) once the music stops.

After Paulson's performance, George was joined by Chris Dodd, who wept barely-convincing crocodile tears about the seriousness of the threat to the American people and how we need reciprocity from the financial industry. From the same guy who chairs the Banking Committee and was instrumental in preventing bankruptcy judges from adjusting mortgage terms on primary residences and making it much harder to get out from underneath crushing personal debts! He is right that the problem is incredibly serious; he described that there as a terrified silence of "10 or 15 seconds when the air went out of the room" when Bernanke and Paulson told our leaders on the Hill that we are days away from global economic collapse.

Also appearing with Senator Dodd was John Boehner, whose stiff ideological cock appears to be going flaccid in the face of what, in his words, could be the most serious financial crisis that the world has ever dealt with." He's against big government intervention, he said, "but we face a crisis." Interesting how that works, though he also took pains to interrupt Dodd to declare that we already resolved the issue of reform in the financial industry by passing the housing bill last summer, while at the same time reminding us that he didn't even vote for that bill because of the generous assistance package therein for real estate developers. How precious. And we should conclude that the House minority leader is not just another partisan?

As George Will put it regarding the definition of socialism according to Britain's Labour Party, the U.S. government now controls the "commanding heights" of our economy, i.e. financial services. But to bring it all back to this year's election, this crisis is serious enough to become the primary issue in Barack Obama's campaign. The Iraq war pales in comparison to this, and the Democrats have long been searching for a definitive way to make this election about domestic issues and not foreign policy. And now that way has come, for as Will also observed that no unelected official should have control over 800 billion dollars' worth of our economy, Paulson is a Bush appointee and so once again the responsibility falls on his administration.

It was refreshing to see George Will, arch conservative, scarcely ever to be curbed, distancing himself from John McCain, who voted in support of deregulation, and will find it (as Sam Donaldson observed) quite hard to now paint himself as the best choice to implement re-regulation as the tool of reform.

I also thought Donna Brazile made a very good point, which George Will echoed in terms of the same people telling us in previous weeks that this horrendous problem was being solved. It's not clear how much time our leaders actually have to negotiate before we dive into the abyss. It's not fair for conservatives to again say, as they did with Iraq, that we're in a tough spot and we have to do this in order to avoid a much worse alternative, when it was in fact the conservative plan and authority that put us here in the first place. At some point there must be accountability and that's what society must and will demand. This crisis is too large to be covered up by mass media and MBA marketing programs pushing TMZ/OMG opiates regarding celebrities and Hollywood.

Since the bank rescue package will not include assistance for The People, and because society at large will demand assistance for them as well, bigger government or/and higher taxes to stimulate the system through public works are inevitable in one form or another. Increased taxation is the domain of Democrats, and that's why they will ultimately win the 2008 Presidential election. The Republicans won't want to confuse their reputation by being forced to create another New deal administration, as it will make it extremely difficult in future to campaign on a platform of conservatism and small government. With eight years of neo-conservative economic and fiscal policy causing an outright (and ironic) requirement for a very large government, Republicans will now much prefer that the Democrats implement the solution, allowing eight years into the future for them to criticize the inevitable excesses and inefficiencies as their justification to return to executive power.

It is inconceivable to imagine a period of ongoing Republican majority from 2000 through 2024 where the Republicans direct us into this mess, then stay in control to implement the cleanup, and then once again maintain control to optimize the resulting stabilization. Commentators like Kevin Phillips long before predicted a coming Republican majority, first in the form of Reaganomics, then with Gingrich's 1994 Contract with America, and finally with Karl Rove's divide-and-conquer brand of divisive politics that established the Bush era.

After all this, the Republicans at this point can't be seen raising taxes and doing what must be done to right the catastrophe that occurred on their watch. It can be argued that issues of banking and finance regulation extend back prior to Bush 43, but the tech bubble burst during his first term, and then we also had 9/11. The result of this was a need for powerful growth, which then led to the need for a new, much bigger bubble: Real Estate. And now that bubble has burst as well. All that is a lot of burden to put on one administration, and normally I would feel a lot more compassion for them than I do right now, except for the utter arrogance in legal interpretation and self-righteous ideology (in finance and war) that has driven this administration from auspicious beginning to ignominious end.

The crisis appears to be so large, in fact, that it's enough to overcome the pathetic failure of young people to let go of their celphones, Dolce-Gabbana sunglasses, Louis Vuitton handbags, XBox controllers, and Facebook profiles long enough to get off their tuckuses and VOTE.