Opposing The Bailout

Double G takes the "You're an idiot to oppose the bailout" Village crowd to task.

Washington Post business columnist Steven Pearlstein has spent the week insisting that only gross ignorance could account for opposition to the Paulson bailout. After the House rejected the bailout plan on Monday, he wrote a column -- entitled "They Just Don't Get It" -- arguing that bailout opponents simply "don't understand the seriousness of the situation." He scoffed at the idea that any well-informed person could question -- let alone oppose -- the specific Paulson bailout plan Steve Pearlstein favors.

The Pearlstein column isn't as bad as Glenn makes it out:

Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system.

Politicians worry less about preventing a financial meltdown than about ideology, partisan posturing and teaching people a lesson. Financiers have yet to own up publicly to their own greed, arrogance and incompetence. And leaders of foreign governments still think that this is an American problem and that they have no need to mount similar rescue efforts in their own countries.In the coming weeks and months, all of these people will come to understand how deep the hole really is and how we're all in it together.

They'll come to understand that the giant sucking sound they hear is of a massive deleveraging of the global economy and the global financial system as households, governments, businesses and investment funds adjust to living in a world with less debt and more inflation.

Now, he's dead right on the problem. It's the solution where Pearlstein fails.

And they will come around, reluctantly, to the understanding that the only way to get out of these situations is to have governments all around the world borrow gobs of money and effectively nationalize large swaths of the financial system so it can be restructured, recapitalized, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet.

Borrowing gobs of money is how we got into this mess in the first place. We already owe $10+ trillion, plus $50+trillion in unfunded garbage.

There are no gobs of money TO borrow. Regulation yes. Borrowing gobs of money? Already did that, not working.

Glenn has more on the fix:

all sorts of other Actual Experts -- not just Pearlstein's idiot-readers and moron-left-wing-bloggers who have the audacity to object -- have argued that this plan won't work, is deeply unjust, and that far better and more equitable alternatives exist.

Just today, in Pearlstein's own paper, Jonathan G.S. Koppell and William N. Goetzmann of the Yale School of Management argued that a far preferable solution is to have the government pay off all delinquent mortgages -- which would transform the toxic waste into solid instruments and would prevent people from having their homes foreclosed -- the very plan Pearlstein's reader advocated which provoked such snotty scorn. Many other ignorant, ill-informed morons have had the temerity to argue that other proposals were superior to the bailout, including George Soros (recapitalize the banking system) and Actual Economist Brad DeLong (nationalize under-capitalized institutions). One of the leading blogger-opponents of the bailout has been Duncan Black, an Actual Economist with a Ph.D. in Economics from Brown. And Actual Economist Dean Baker wrote earlier this week:

How do we go about getting the banks in order? Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank. (That's what Warren Buffet did with Goldman Sachs.)

Pearlstein -- and so many other bailout cheerleaders -- scorns those same concerns as grounded in stupidity and ignorance when they come from the ugly, loudmouth, teeming, insubordinate masses who refuse to obediently bear the massive debt being tossed on their backs.

I may not have a Ph.D. in Economics, but I'm smart enough to recognize the fact that throwing a shitload of money at this problem over the last year has done nothing to fix it and in fact has made the problem much much worse, resulting in the problem we have now. Bush has refused to do anything for homeowners because he says that's rewarding people who made bad decisions, you know, unlike this entire mess of a Wall Street bailout.

It logically follows that throwing shitloads MORE money at the problem is therefore NOT the answer. The problem is the housing depression. Take the money and pay those bad mortgages off. Housing prices will then stabilize. It's cheaper than the bailout as is.

Until housing prices stop falling at the rate of 20% year-over-year, nothing we do to correct to symptoms of the housing depression will help. So, we can either wait until the housing depression levels off and then take action, or, you know, take action to stop the housing depression.

A government agency to buy mortgages and stabilize home prices is the only real solution. The banks don't need nationalization, it's the housing market.

As long as home prices keep falling, the problem will get worse.