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.
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.