Thankfully Dennis Kucinich, The New York Times' Adam Cohen, and later, Dean Baker, helped me put things in perspective a little bit.
Baker's point, spelled out directly in the title of his most recent post, "The Stock Market is not the Economy," is that we shouldn't be so quick to claim that turmoil on Wall Street spells calamity for the "Real economy". According to Baker, the markets panicked in response to sensational media coverage:
The conventional wisdom in the media was that the economy would collapse in the absence of the bailout. I know of few, if any, economists who shared this view, even among those who supported the bailout. However, the disaster view undoubtedly permeated Wall Street....
We cannot look at the markets as an independent gauge of the impact of Congress not passing the bailout. The stock markets are reflecting the conventional wisdom in the media, they do not provide an independent assessment of the economy.
He also went on to explain that a fall in a firm's stock price does not translate directly into problems for its workforce:
Furthermore, while the sharp one-day drop is in fact scary, it actually has relatively little direct impact on the economy. As former Treasury Secretary Robert Rubin often said, "markets go up, markets go down." Lower stock prices do not cause firms to cut back investment or layoff workers. Such decisions will be made based on their assessment of the state of the economy and their specific market.
In other words, just because the stock market took a dive yesterday, doesn't necessarily mean the sky is falling. This is not to say that the U.S. economy is not in serious trouble, because it most certainly is. But the economy is not in trouble because of a weak stock market. From what I can tell, the main issues facing the economy are:
- The credit crisis (financial institutions are refusing to loan to the private sector, which could have dire consequences for small and medium sized firms)
- The huge loss in housing wealth suffered by millions of Americans as a result of the collapse of the bubble
- The millions of homes that have been foreclosed on and the millions more Americans who will likely lose their houses unless the Federal government does something about it
- And, rising unemployment
Given these facts, Dennis Kucinich provided some much needed wisdom yesterday in his interview with Amy Goodman on Democracy Now!. My favorite (or at least one of my favorite) members of Congress firstly pointed out that a bailout is not the only way to deal with the credit crisis and that alternatives ought to be explored:
We haven’t looked at any alternatives, Amy. This is—you know, it isn’t as though, if you had a liquidity crisis, that—you know, a real one—that you’d start to look at all the alternatives. We haven’t done that. We have a bill here, a bill of more than a hundred pages, that we haven’t had a single hearing on the bill, you know—on the concept, yes, on what Paulson and Bernanke asked for initially. But, you know, we need to have hearings on this. There’s 400 economists and three Nobel Prize-winning economists who have said, “Whoa, wait a minute! What are you doing? Why are you rushing this?” You know, this thing doesn’t smell right, frankly.
The bill also does nothing to provide any real assistance to homeowners facing foreclosure, the true victims of this whole debacle:
one of the real conceits of this bill is that it has the word “homeowner” all over it, but when you look deeper at the fine print of the text, it does not provide any direct aid for homeowners and doesn’t even require that the government set itself on a path to help homeowners. This is not about homeowners.
And lastly, the bill does nothing to address the root cause of the problem: irresponsible lending practices and the utter lack of regulation and oversight over these firms, thanks to years of Republican (and Democratic) financial deregulation:
The bill doesn’t, by the way, address anything about the speculation, anything about the lack of regulation. The SEC has failed. The Fed has failed. And we’re essentially telling all the same actors, “Go for it. You know, here’s another opportunity,” except this time it’s with taxpayers’ money.
Kucinich's argument, with which I agree wholeheartedly, is that we shouldn't just rush to bail out Wall Street because Henry Paulson, Nancy Pelosi, or the Wall Street speculators themselves say we have to. Many observers have commented that from the time Paulson released his original bailout plan, the political atmosphere surrounding this issue--the constant evocations of fear and doom if we don't do exactly what the administration says, the pressure to move quickly, the lack of any substantive debate of possible alternatives, and the power grab by the executive branch--has had a strong and eerie resemblance to the days following September 11th when the Bush administration succeeded in convincing a quiescent congress to vote for the Patriot Act, or the buildup for the illegal war against Iraq shortly thereafter. Needless to say, these people can't be trusted and we shouldn't just stand by and allow them to abuse the American people once again.
My last point about this whole debacle, which was brought to my attention by Adam Cohen of the New York Times, is that the contrast between the behavior of this administration and this congress in the face of a financial crisis and that of FDR and the Democratic Congress in 1933 could not be any more stark. In 1933, they didn't just hand out cash to the people who got us into this mess, they fundamentally transformed how the American financial system worked, indeed they redefined the very role of the government in the economy, and they did it all within 100 days! Could you ever imagine such an act of statesmanship, of transformational leadership in times of crisis, coming from the federal government today, even if there was an even bigger Democratic majority in Congress and a Democrat was president? I certainly couldn't, Wall Street has too much control of both parties.
But maybe, just maybe, the vote against the bailout yesterday is cause for hope, that public pressure is getting so intense and the American people are getting so frustrated and angry with their corrupt leadership that fundamental changes are on the way. Here's to hoping, I suppose.