A Populist Backlash?

Now that the crisis is spreading to the real economy, you can feel the anger and resentment starting to build. Robert Reich thinks we may be “courting a populist backlash”:

Are We Courting a Populist Backlash?, by Robert Reich: The government is doing a lousy job helping distressed homeowners. And according to … the Comptroller of the Currency, the little that’s been done has had surprisingly little effect. Nearly 36 percent of homeowners holding mortgages whose terms were adjusted to give them more leeway defaulted on payments within three months, and almost 53 percent were behind on payments by six months.

What’s going on? It’s hard to know for sure, because the homeowners who have qualified for help so far were supposed to have been fairly good credit risks…. My guess is the worsening economy is making it harder for just about all homeowners to pay their mortgages, and those who were teetering on the edge months ago … are now way under water. Two of the biggest culprits: Layoffs and fewer working hours. …

It wouldn’t surprise me if many of these Americans were starting to look at the size of the bailouts of Wall Street and the bailout of the Big Three — at the executives, well-paid professional employees, upscale creditors and shareholders, and even well-paid blue-collar workers, who are the major beneficiaries of this federal largesse — and conclude that a fundamental principle of fairness is being violated.

These Americans aren’t revolutionaries. To the contrary, they’re deeply conservative. They’ve worked hard, but their hard work hasn’t paid off. Some have tried to save, only to see their savings disappear. They’re worried about the future and about their kids’ futures. They never expected anything like this.

This is the angry soil in which populist backlashes can take root.

We may be able to do a better job of sorting out which homeowners to help now that we have some experience with the program, so the 53% number may be improved upon going forward. But if the goal is to prevent a certain number of foreclosures, and if the number cannot be improved, we could also help twice as many people. That might help with the backlash problem.

On the populist backlash, maybe that was part of the reason for this?:

Deal to Rescue American Automakers Is Moving Ahead, by David M. Herszenhorn, NY Times: The White House and Democratic Congressional leaders said Monday that they were close to agreeing on the terms of a $15 billion government rescue of the American automobile industry that would be directed by one or more appointees of President Bush and would impose expansive federal oversight of the auto companies.

The House speaker, Nancy Pelosi, said she hoped that Mr. Bush’s appointee — or car czar, as the position has come to be known — would not need to be replaced by President-elect Barack Obama, raising the prospect that the outgoing and incoming administrations would cooperate in selecting someone.

The president’s designee would disburse the short-term emergency loans to General Motors and Chrysler, which are at risk of financial collapse, and would directly supervise the reorganization plans that the auto manufacturers have agreed to carry out in exchange for government aid. The government also could receive warrants that would give it equity stakes in the companies.

The Ford Motor Company announced Monday evening that it would not seek short-term federal aid, denying that it faced the same “near-term liquidity issue” as G.M. and Chrysler. …[O]fficials expressed optimism that they would reach a deal and that Congress would vote on the package this week.

The progress in the Washington talks helped lift the stock markets…

By Jan. 1, according to the draft bill, the car czar would be required to develop benchmarks for assessing the automakers’ progress in carrying out the restructuring plans. The car czar would also have the power to convene meetings of an array of interested parties in the auto companies, including unions, creditors, suppliers, auto dealers and shareholders. …

The White House had earlier proposed that the auto czar reside within the Commerce Department with the title of “financial viability adviser.” The Democrats’ draft would seem to allow the administration to do just that, and would not require Senate confirmation for the post. The Democrats’ draft legislation includes an array of stringent taxpayer protections. …

Will Americans be more likely to buy cars from GM and Chrysler if they are part owners in the companies? Market share will be critical as car sales decline in coming months – output will have to fall – so will foreign carmakers move to protect themselves with offsetting subsidies, etc. of their own? I’m not comfortable with this for a variety of reasons, but losing that many jobs right now is not an attractive option, so there doesn’t seem to be much of a choice.

One question to ask is how we ended up putting ourselves into a position where we could not allow firms to fail. There are lots of reasons, but if we had better social insurance, good enough so that the health and welfare of workers and their families was not threatened by the failure of the automakers, it would be a lot easier to avoid a bailout.

Originally published at the Economist’s View and reproduced here with the author’s permission.

2 Responses to "A Populist Backlash?"

  1. g Anton   December 10, 2008 at 1:13 pm

    What’s very clear is that the entire US economy needs to be rebuilt from the ground up, and this is going to cause much pain and suffering to a large segment of the US population, and the economy can’t be rebuilt overnight. “Stimulus packages” may have a beneficial humanitarian purpose in the short term, but giving people virtual money to buy inported Chinese goods as a method of reconstructing the economy is ridiculous. The main reason that the economy is failing is that it was and is rotten to the core, and reconstructing the new economy in the image of the old is absurd. The reason that these business entities are failing is that they are failures, and bailing out and giving money to a failure is like dressing a monkey in a Brook’s Brother’s suit; depenting upon your taste, he may or may not have a better appearance, but he continues being a monkey.

  2. sfbvbj   December 10, 2008 at 1:45 pm

    As I have stated repeatedly, an economy needs a floor as well as a ceiling. Without a strong manufacturing base which utilizes engineering, forward-looking business plans which in turn encourages our students to pursue an education in fields which they have an assurance they can find a job, our future looks pretty bleak.We cannot base our economy on consumer spending which raises family debt levels to an unsustainable amount which in turn allows banks to increase interest rates when they default. It is just a vicious cycle.