If the government is the solution here, it’s only solving a problem it had a hand in making.
This isn’t a Republican problem. This isn’t a problem with capitalism. It’s a problem with the unholy marriage of capital and government. One of the root causes of this problem was the push by lawmakers in both parties to make homeowning easier. Fanny and Freddie have always been understood to have the weight of the government behind them, which built false confidence in the securities they held. Lawmakers pushed for the easing of rules for purchasing homes, the U.S. offers a mortgage interest tax deduction to encourage home ownership, etc.
If you want to blame Republicans, you need to explain why Chris Dodd was the biggest recipient of lobbying funds from the mortgage industry. The fact is, all these people looked the other way. Their constituents clamored for looser credit, and their lobbyists wanted to give it to them. When those two interests coincide, politicians can’t help themselves.
The last attempt to reign in Fanny and Freddie came up in 2005, sponsored by John McCain. The bill was defeated mostly by Democrats. But over the history of these agencies, both Republicans and Democrats have been in the driver’s seat, and both parties did damage.
And let’s not forget that when assigning blame here, it’s not just the evil CEOs who made out like bandits on this. The real estate speculators who benefited from the boom in house prices caused in part by cheap credit made a fortune. And a lot of those speculators were individuals. Also, a significant part of the blame has to go to those people who took out home loans they couldn’t afford, and to those who bought homes on good faith, then walked away from the mortgages when the home values declined below the mortgage value. A certain Congresswoman did this TWICE.
So rather than pointing fingers at the other side in typical hysterical partisan fashion, and trying to blame the ‘rich’ and solve the problem on the backs of the rich, it might be more productive to think about this as if Republicans and Democrats didn’t exist - just the problem.
One of the issues I’d have with the bailout scheme is that Paulson is completely unwilling to discuss the consequences of not acting. At least in public. He’ll only offer vague generalization that it will be ‘very bad’. So he wants a blank check and ultimate power because the problem is so great that nothing short will suffice, but he’s not willing to explain what the consequences would be if he doesn’t get the power. I understand that having the Treasury Secretary issue a terrifying statement of risk might not be good for the markets, but there has to be some way of getting the information across so people can make better decisions.
Part of the problem here is that the people who are getting the information behind closed doors (the members of the house and senate), are the people who were part of the problem. They have a great vested interest in deflecting the blame, and are probably more likely to approve this than they would be if their hands were completely clean. If they give total control to Paulson, they can wash their hands of it all. If Paulson’s house of cards comes down in a year, they can say, “Hey, don’t look at us. We had no choice but to turn this over to him, and he screwed up.”
Paulson’s providing huge cover for these people. That’s a dangerous motivator.