Required reading on the bailout

David Leonhardt of the New York Times has an explanation of the financial crisis and the reaction to the bailout bill in Washington that is so clear, one wonders why it took a week for someone to write one.

Could the current crisis lift — could banks decide they really are missing out on profitable investing opportunities — without a $700 billion government fund to relieve Wall Street of its scariest holdings? Sure. And is Congress right to fight for a workable program that’s as inexpensive and as tough on Wall Street as possible? Absolutely.

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.

The fear and anger that led to people jamming the phone lines of Congress (and crashing its Web site) is certainly understandable. But it also lacks a logical alternative unless one believes the economic forces that affect our wallets don’t really exist.

As for the politics of it all, Dan Balz in the Washington Post cuts through the talk show chatter with a scalpel.

The voters will sort out the blame on all this in November. Anger at Washington will feed a hunger for change, and it’s likely to fall harder on the GOP as the party that holds the White House. But for the next president and the next Congress, whatever its makeup, Monday’s performance should be looked at as an example of what it was, a performance designed to undermine the public’s confidence in its elected leadership.

Mission accomplished.

Update 8:41 a.m. Let’s add Thomas Friedman to the mix, even if it’s just because of this paragraph:

I’ve always believed that America’s government was a unique political system — one designed by geniuses so that it could be run by idiots. I was wrong. No system can be smart enough to survive this level of incompetence and recklessness by the people charged to run it.

  • JohnnyZoom

    From the “that which doesn’t killl you makes you stronger” department: This crisis inspired a good bumper sticker slogan last night. While thinking about anger at executive compensation, I came up with this:

    Parachutes only work with strings attached

    If ever you see one on a car for real, remember you saw it here first. Just saying.

  • Bob – the NYT article was good, but flawed. IMO here is the line that gives away the flaw:

    ““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.””

    We are not doing nothing. The FED and Treasury both have powers and tools today that were not available to them in the Great D. FDIC was not around then.

    The President of the Federal Reserve Bank of Minneapolis wrote a book called “Too Big To Fail: The Hazards of Bank Bailouts” you can find an essay version on the web site, . One line that catch’s my eye -“The U.S. approach to too big to fail continues to lack credibility.”

    Also from the FRB of Mpls is Vice-president Art Rolnick’s 1997 annual report article “A Plan to Address the Too-Big-To-Fail Problem” found at, .

  • Joel


    That’s a good one. You know, there are places online where you can create and sell your own shirts, buttons, bumper stickers, etc.

    This is one such place

  • Joel

    Oops, screwed up that last link.

    The place I’m talking about is

  • Oh I almost forgot, the car sales example he gave is without details. He sites that freezing markets have dropped cars sales, that would imply that credit application were at the same level and that credit approvals were down. But it could just be that car sales are down. He does not give proof of his assumption of a cause and effect.

  • Travis

    All the proponents say that there are no alternatives to the $700 Billion Bailout. Anyone who says that is obviously uneducated and should not be listened to. I think Americans are smartnening up. Washington has been unaccountable for far too long. I wish Congresses phone lines had been tied up for the last 20 years then none of this would have ever happened.

    You can not fix the problems that occur due to over-involvement of government in the economy by allowin ght egovernment to take over even more of the economy. i.e. You cannot expect to fix a problem by doing the same things that created it.

  • Travis

    The economy is in trouble. We got here through the mis-direction of capital and credit. The mis-direction of capital and credit has been occurring for a very long time due to the interest rate manipulation of the Federal Reserve and through the social engineering practices of this country’s politicians. These policies gave us a false sense of prosperity for far too long and led us all to do the wrong things. The Federal Reserve’s policies discouraged savings and encouraged bad investments. That is a fact that is not being discussed. And now that the results of bad policy are coming to fruition we wish to push the blame on the Free Market by intervening in an even more unprecedented way then ever before.

    Make no mistake about it and do not let them fool you: The Great Depression did not occur due to lack of intervention. Quite the opposite! The inflation and debt of World War I followed by the easy credit of the 20’s eventually collapsed the economy. Just like today; The easy credit throughout the 90’s and 00’s and the debt/inflation of Iraq and the Middle East have again brought us to our knees.

    Do not make the mistakes of the Depression again. Hoover and Roosevelt spent most of their presidencies trying to prop prices up (despite the market forces) and they caused the Depression to go on for more than a decade.


    The pain that will come will hurt and it could be a bad year, but the alternative is much, much worse and the rich will go along fine buying up America while the middle class is destroyed and we will suffer until those policies are forced to change and the market can again be free of intervention and be allowed to correct. For the average American most of the correction has already taken place. You can only harm my family and friends worse by propping up these big financiers.

    I will not be walked over by the elitist social architects running this country any more.

  • JohnnyZoom

    “Cash and fetal”

    ROFL. That was great.

    Friedman’s article is interesting to read after reading another of his from a couple days ago. His overall take on this crisis is perhaps more nuanced than some of the posts above might suggest.

    That said, the older article of his was one of the most brilliant pieces of writing I have read in a long time, if only for the “all it will leave behind is…” contrast and the parts-of-a-car analogy.

    I remember as a college student two decades ago, puzzling over many of my peers marching through the business school. I wondered what it was they were learning about, as it seemed only “how to make money” rather than skills to do something productive, or make something, which then earns money. While of course that was an oversimplification, I feel somewhat vindicated, especially since some of my good friends in the business program, who were fine people otherwise [g], were quite affronted by my sentiments.

  • JohnnyZoom

    Addendum to older Friedman article: “The American Dream is an aspiration, not an entitlement.” Another Emperor-denuding gem.