Thursday, October 02, 2008

We're All In The Same Boat

In these times of financial uncertainty and political confusion, the Wall Street Journal has become a daily must read. You're not going to learn more about what's really going on, how we got into this mess, and the least painful way out anywhere else. The most interesting financial analysis that you're going to find in newspapers like the Star Tribune is their own efforts to avoid going broke (the plaintiffs better get that sexual harassment suit settled quickly while there's still money to be had).

The latest and greatest example of why the Journal is essential reading is today's editorial called Bailing Out Ourselves:

We are told this is a "bailout for Wall Street." But if Americans are honest with themselves, they will admit that bankers are far from the only cause of our current predicament. The U.S. is living through the aftermath of a classic credit mania, one that all of us enjoyed while it lasted. We don't remember many protests when home prices were rising by 15% a year, or when interest rates stayed at 1% for a year and real interest rates were negative for far longer. Some of the loudest voices now invoking "free markets" to denounce the Paulson plan were most opposed to tighter money. We know because their complaints were often aimed at us.

Our point isn't to absolve Wall Street or Washington -- far from it. The point is that credit manias are by their very nature societal, which is why the panics that follow can do so much damage to Americans outside the financial arena. They are part of a larger psychology that sweeps everyone up in euphoria for a time, only to send everyone into a defensive crouch when the credit stops.

The challenge at such a moment is to prevent a panic from becoming a crash that does far more extensive damage. This is where we are now, and this is why the House should pass the bill that passed the Senate last night, even with its flaws. The government needs the power to use public capital to defend and stabilize the financial system. In that sense, we are really bailing out ourselves.

No one wants to pass this bill and turn another $700 billion over to the government. This is not a perfect plan. In fact, there are a lot of problems with it. But in order to prevent further economic damage we need this plan as flawed as it may be. As the Journal's editorial board put it in another piece a couple of days ago, schadenfreude is not a policy (although this guy may disagree).

The pain of inaction is not being felt in the stock market (right now), but with credit drying up there are scores of news stories of businesses either not being able to get the money they need now or being worried about not being able to get it in the very near future. This is the real pinch point that will shortly have reverberations throughout the economy if nothing is done.

Today's editorial also recognizes those who contributed to the problem as well as those leading the way toward a solution:

And now, having done so much to create this mess, many of the same Members who protected Fan and Fred are denouncing the "bailout" as a favor to Wall Street. Who do they think were Fannie Mae's business partners? Who marketed mortgage securities to the Chinese, for a tidy fee? Main Street investors also loved Fan and Fred while they were making private profits by taking inordinate risks with a taxpayer guarantee.

The real heroes of the House are the Members who tried to reform Fannie when that was unpopular and are now trying to defend the financial system while that too is difficult. We have in mind Paul Ryan, the Wisconsin Republican, who has had the guts to support the Paulson plan while his GOP colleagues in safe seats, like Jim Sensenbrenner, run for cover.

You hear Ryan's name more and more these days in positive discussions about Congressional Republicans. I expect you'll hear even more in the future.

Today's WSJ also has a look back at what various politicians said about Fannie Mae and Freddie Mac in the past. There are a number of nuggets from the likes of Frank, Dodd, and Schumer. My favorite came from Maxine Waters:

Rep. Maxine Waters (D., Calif.), speaking to Housing and Urban Development Secretary Mel Martinez:

Secretary Martinez, if it ain't broke, why do you want to fix it? Have the GSEs [government-sponsored enterprises] ever missed their housing goals?

Who cares if the underlying foundation for all this housing sits on quicksand? As long as the goals (quotas?) are being met, there's nothing to see (or fix) here.

Finally, let me provide a bit of balance by pointing out something in the Journal that is far from must reading. If you've ever wondered what it would be like if Nick Coleman had a national column look no further than Thomas "What's Wrong With Those Ignorant Rubes In Kansas?" Frank and his "The Tilting Yard" weekly column in the WSJ. Frank follows the Coleman playbook almost to a tee albeit on national issues:

1. Distort and remove all context from your opponent's position until it's nothing more than a flimsy straw man

2. Interview one person who agrees with your position and present them as holding the consensus opinion

3. Throw out baseless assertions in a smug manner with the attitude that every rational American has to come the same conclusion as you and that those who don't are either idiots or part of the neo-con conspiracy

I can understand why this sort of hackery is tolerated at the Strib, but I would expect better from the Journal.

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