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There’s more at stake in the present Wall Street bailout tsunami than the partisan posturing might lead you to believe.
Conservatives vs. moderates vs. progressives vs. everybody.
In a lifetime of casual reading about the Great Depression of the 1930s, the main cause that stuck in my mind was the wrong-headed protective tariffs established by the Smoot-Hawley act, which caused the economic dominos to topple all over the world.
Economists tell a different story; far less global, and very much local. David Leonhardt, in the NYTimes tells of some disturbing parallels with the current crisis.
Crisis feels altogether too bland a word for what the nation is facing today. Abyss feels more appropriate.
And if I exaggerate, that is a reflection of what I see and hear.
This one has even the normally oblivious shaken.
Lesson From a Crisis: When Trust Vanishes, Worry
Economic Scene | By DAVID LEONHARDT | Published: September 30, 2008
Why are we talking about the Depression, anyway?
Almost no economist thinks that even a terrible downturn would look like the Depression. The government has already responded more aggressively than it did in Herbert Hoover’s day. So a Depression-like contraction — a 30 percent drop in economic activity — is highly unlikely. The country is also far richer today, which means that a much smaller portion of the population is living on the edge of despair. No matter what happens, you’re not likely to see shantytowns.
But the Depression is still relevant, because the basic mechanics of how the economy might fall into a severe recession look quite similar to those that caused the Depression. In both cases, a credit crisis is at the center of the story.
At the start of the 1930s, despite everything that had happened on Wall Street, the American economy had not yet collapsed. Consumer spending and business investment were down, but not horribly so.
In late 1930, however, a rolling series of bank panics began. Investments made by the banks were going bad — or, in some cases, were rumored to be going bad — and nervous customers besieged bank branches to demand their money back. Hundreds of banks eventually closed.
Economic Scene – Lesson From a Crisis – When Trust Vanishes, Worry – NYTimes.com
It’s about credit. Healthy lenders pull back; the rest of us founder.
And this is why Congress feels compelled, or its constituents are compelling it, to act.
As I write this, the Senate, taking the lead today (while the House nominally observed the second day of the Jewish holiday) and passed a bailout measure.
Henry Paulson’s three page sketch became a 450-page doorstep in the process.
Here’s hoping that there’s something real and substantial in there for ordinary citizens.
But at least Congress has begun to act on this.
History, if we bother to read it, records the folly of inaction.
But in the end, this really isn’t about Wall Street. It’s about reducing the risk that something really bad happens. It’s about limiting the damage from the past decade’s financial excesses. Unfortunately, there is no way to accomplish that without also extending a helping hand to Wall Street. That is where our credit markets are, and we need them to start working again.
“We are facing a major national crisis,” as Meyer Mishkin’s grandson says. “To do nothing right now is to do what was done during the Great Depression.”
It’s it for now, thanks.
Left-handed Complement 
great post as always Mudge. But there does seem to be a bit of fear mongering from washingtOOn these days. If you listen close, “Our entire economy is in danger” sounds just like “we can’t let the proof come in the form of a mushroom cloud” coming from the g’dubya who cried wolf! This after he said for eight years “the fundamentals of the economy are strong.” I for one don’t believe that anyone, including the dems, believes anything g’dubya says anymore! If we ever did, and I didn’t!
We also need discuss what is in our best interest concerning what should be done. Loading the 4 page disaster of a bailout with pork is not a step in the right direction!
Glad you brought up the depression. There is a major cause of this disaster that has a link to depression era sensibility, lost to us in 1999:
BOTH the dirty dems and filthy repubs are to blame for this disaster. BOTH set the economic wreaking ball of DEREGULATION swinging. The rebubs deregulatory fervor is quite well known, but the dems are just as guilty:
In 1999 the gramm-leach-bliley Act was passed. It repealed the old Glass-Steagall Act, passed in the Great Depression, which prohibited a commercial bank from being in the investment and insurance business. President bill clinton signed it into law.
Before gramm-leach-bliley was passed, clinton sent his economic point man, robert rubin to capital hill to push for it’s passage. rubin and lawrence summers at clinton’s Treasury were the financial deregulation guys on the clinton team. gramm-leach-bliley made it legal for all the thieving that caused this subprime mortgage disaster to happen! Under the old Glass-Steagall Act, none of this would have taken place!
robert rubin personally benefited from the repeal of the Glass-Steagall Act. After leaving his clinton Treasury position, he co-directed the newly merged investment/commercial banking conglomerate Citigroup. Under Glass-Steagall, the former commercial bank Citicorp and the former investment banking firm Travelers would not have been allowed to merge.
robert rubin is now a member of the obamessiah team. He is one of obamessiah’s major ECONOMIC ADVISERS! gramm for whom the gramm-leach-bliley is named is one of the reverend mcPain’s major ECONOMIC ADVISERS! If that ain’t letting the foxes in the chicken coop I don’t know what is!
I for one do not want any more of these corpoRATe retreads like rubin on the white house staff! I won’t be voting for either obamessiah or the reverend mcPain!
The only thing worse then the dirty dems and filthy repubs working against each other, is when they work together! That’s when we the taxpayers really get robbed!
In an effort to calm the fear, I remind people that the “mortgage crisis” that started this whole thing is more myth then reality. Fully 95% of all mortgages in the USA are paid in full and on time. It is only 5% of the mortgages that were the problem. This would not have been a big deal if mega monster companies like WaMu and countrywide had not held so many of them, and idiot wall street banks didn’t turn them into now worthless paper! From what I see this bailout is just the dirty dems and filthy repubs lining the pockets of their rich buddies, using this “crisis” as an excuse!
Even if something need be done, it can be done fast and cheap by treasury dept. using the power that FDR used in the great depression to shore up mortgages. Back then treasury simply renegotiated the problem loans and ordered the banks that held them to lower the interest and increase the number of years to pay them back. Cost to taxpayers for this plan? $0.00
The scientifically impossible I do right away
The spiritually miraculous takes a bit longer
ClapSo,
Thanks for the very cogent history lesson. As I write this, the bailout is a done deal, with a trifle for the citizens and unseemly gold for the plutocrats, as always.
It’s going to be one or the other, ClapSo; McCain is a true loose cannon, but Obama can be reasoned with I think.
I’m voting for the least loose.
Thanks, as always, for your contributions to this space.
With mcPain about to fall behind by double digits in the polls, he is no longer a threat. His veep pick caribou barbie is the last nail in his coffin.
The only people who can “reason with” obamessiah are the corpoRATe lobbyists who are on his staff and will join him in the oval office. These corpoRATe lobbyists have given him huge bribes, ur um “campaign contributions” through a back door so he can claim he “doesn’t take lobbyist money.” We are being sold a bill of goods!
I hope you will at least take a quick look at the page this link leads to. See how obamessiah and the reverend mcPain have the same agenda on all the important issues:
http://votenader.org/issues
The scientifically impossible I do right away
The spiritually miraculous takes a bit longer
ClapSo,
We need to agree to disagree. I guess I’m a pragmatist; too old for ideals. As I said, I’ll take my chances getting a progressive agenda done with a guy who may actually be able to get elected, rather than the tired guy who cost us eight years of agony.
Thanks!
america has been in decline for awhile now – i’m not sure why everyone is suddenly surprised this is happening. all the oblivious folks in middle america who voted for bush because they wanted to have a beer with the guy still can’t totally make the connection between the failed bush policies and the massive meltdown of our economy. we told them and told them and told them and all they could do is scream their anti-liberal hate. now we’ve been proven right and they are still clueless (but starting to wake up, according to the polls!)
those who say the candidates are the same aren’t paying attention and really don’t know all that much about american politics. nadar? seriously? didn’t we learn our lesson the first time around?
We are finding that it’s not just failed policies that have done us in. No, failed policies can be reversed. What we’ve seen is gold-plated criminality among the plutocrat classes, in Washington and on Wall St. That’s not decline — it’s treason. Thanks, daedalus, for your insightful commentary.
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