If the choice is between a lousy bailout bill and economic Armageddon, I’d vote for the lousy bailout bill.
But make no mistake: This is a lousy bill. It doesn’t do the most important thing — help distressed homeowners avoid foreclosure (that role is given to the Treasury Department, which is the equivalent of putting it into the permanent circular file). It doesn’t make Wall Street more transparent (there’s almost no word in it about improved transparency and capital requirements, or avoiding conflicts of interest and market manipulation). It doesn’t control the most egregious aspects of executive salaries (the bill contains a contorted detour for controlling certain golden parachutes when the government has made direct equity purchases of financial companies rather than taken their bad paper through an auction). It does have provisions designed to protect taxpayers should the bad securities continue to be bad, but the responsibility for acting on this is left up to the next President. And the Senate version has lots of additional stuff — some good (extending deposit insurance), some unnecessary (extending certain tax credits), but most of which should never have been added.
And while the bailout bill may avoid economic Armageddon, it won’t avoid a severe deterioration of the American economy in the months ahead. The bailout will help keep credit markets functioning. But ask yourself: what’s the point of keeping credit markets functioning if most Americans can’t afford to go deeper into debt anyway? And why does anyone suppose that businesses will continue to borrow from credit markets when their customers have stopped buying?
Wall Street and its creditors are not at the core of the American economy. Main Street and consumers are at the core. So even if the bailout bill keeps Wall Street going and prevents the sort of massive defaults that would freeze global credit markets, it does virtually nothing to help the vast majority of American consumers who are already at the end of their ropes — who right now need extended unemployment insurance, affordable health coverage, and assistance in meeting their mortgage payments and fuel bills. And as long as Americans remain at the end of their ropes, the American economy will continue to decline.
So the real choice isn’t between a lousy bailout bill or economic Armageddon. It’s between taking prompt action to help average Americans or watching the nation fall into a deeper and deeper recession. Wall Street will be bailed out. The bigger question is whether Congress and the next administration do what’s needed to rescue the rest of America, and the overall economy.
Originally published on Oct 2, 2008 at Robert Reich’s Blog and reproduced here with the author’s permission.