Stop pointing fingers.
A friend of mine asked me tonight: didn’t you tell me you were against a bailout a few weeks ago?Â
The reality is: Yes, I was against a bailout of any kind until Congress proved they were capable of coming up with a reasonable compromise in the context of a very dire situation. As discussed, I discussed below,Â I believe the regulatory process is working. Whether the bill as it currently stands is the best solution is debatable, but that intervention is necessary at this point has become almost certain.
However, unfortunately, as discussed here (Barnum and Bailey Would Be Proud)Â today’s House vote on the proposed bailout turned into a finger-pointing session with the politics of old ruling the day: Democrats pointed fingers at Republicans and Republicans defiantly stood against supporting Democrats.
All the while, the stability of our economy is suffering. The stock market was down more than it has been in history…and this was not a matter of pointing fingers. It was the market’s reaction to the outlook for the economy if nothing is done.
So why should you care? Shouldn’t we dig our heels in and protect our “free market ideals”?
Why the Bill should pass.
1) Normal people depend on credit in a number of ways in theirÂ daily lives. From grocery shopping, to buying a car, to paying for college, the majority of Americans rely on credit to live. Although people have legitimate concerns about an over-reliance on credit over the last half-decade, we are not living in an academic textbook. We should address financial literacy with education, not with a smack to the head.
2) If we do not do something, many more banks will fail, and credit will significantly contract as a result. As you have seen, a number of banks made mistakes and lent too much money to people based on a failed economic models. If we do not do something, many more banks will fail. In fact, even if we do intervene, it is almost certain that there will be continued bank failures as the economy begins to slow and corporate defaults begin. As the credit crisis continues, the reality of credit evaporation will hurt normal people in real ways. We should seek to minimize this unfortunate reality.
3) Our economic theories have been proven wrong…why rely on them now? Those who want to take a hand’s off approach to the current situation don’t have much of a leg to stand on. If you believe in the effectiveness of the free market, how can you explain the excesses that put us where we are today?Â The market failed. Of course it did. It was based on models built by human beings. We are imperfect, so we built imperfect models. This isn’t rocket science. Continuing to bang our head into the wall based on economic principles that have been disproven is not only illogical, it is dangerous.
4) People are afraid. When I first started learning about economics, I remember thinking the ideas of “consumer confidence” and “economic sentiment” were wishy washy terms. Why would we care about people’s opinions when thinking about economic growth? The reason people’s opinions matter is because people are our economy. The market is comprised of millions of people, and their subjective understanding of the economic outlook can be just as important, perhaps more important, than what that understanding should be. Watching the stock market plummet today and gyrate over the last few months has made everyday Americans wary of our future. We need to rebuild confidence in our economy to keep it from slowing more than it already inevitably will.
Is the Bill perfect? No. Will it create moral hazard issues for future executives? Maybe. Will the economy really suffer if the government does nothing? Almost certainly.
The government needs to put party politics behind us.
Unfortunately, the government is facing aÂ credibility crisis.
Sure the Bush Administration has made mistakes.Â It is unfortunate that our confidence in government has sunk to such a low level that people areÂ finding itÂ difficult to believe how bad things will get if we do not intervene. As John Stewart cleverly pointed outÂ in aÂ side by-side view of Iraq and Economy announcments, President Bush’s speech last week was similar to the announcement of the War in Iraq.
However, the fact that you disagree with the President about Iraq should not lead you to stubbornly refuse to recognize how bad things are looking for our economy. No matter what some people might believe, the stock market is not controlled by anyone, and today’s market downturnÂ showed that investors – Democrats, Independents, and Republicans -Â are worried about our economy. And they should be.Â We are witnessing an historic failure of our financial institutions the ramifications of which will be felt for years to come no matter what we do.
Now is not the time to put Party before Country.
Remember…atÂ the end of the storyÂ of The Boy Who Cried Wolf the wolf comes. He is now standing on our doorstep. The question now is what are we going to do about it?
I remain confident that we will do the right thing.