Blame both parties for bailout failure
Democrats and Republicans are still squabbling over who deserves the blame for the bailout plan's failure in the House. But commentator and economist Justin Wolfers says politicians from both parties took their eyes off the ball.
Justin Wolfers (Wharton School, Univ. of Pennsylvania)
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TEXT OF COMMENTARY
Kai Ryssdal: If you happened to Google the words "bailout" and "blame" today, as I did just because I was curious, you got 2.4 million responses. That wasn't scientific enough for ABC News and The Washington Post. So they commissioned a poll on the topic last night. Who is to blame for the bailout plan going down. Forty-four percent said they hold Congressional Republicans responsible; 21 percent said the Democrats on the hill are to blame. Commentator and economist Justin Wolfers says politicians from both parties took their eye off the ball.
Justin Wolfers: Like you, I'm angry about the mess in our financial markets. I'm dismayed that Wall Street's incompetent, overpaid so-called Masters of the Universe have put us in such a tough spot.
But we can't let our anger blind us to the bigger picture. The financial system does something pretty amazing: It converts your savings into productive capital. It's a bridge between borrowers and lenders. When it works, it's a beautiful thing: Your savings are redirected to help young couples buy houses, entrepreneurs turn ideas into innovations and employers invest in their workers.
The "capital" in "capitalist" economies comes from financial markets. Sure, their inherent instability is their Achilles heel. Even so, modern finance has been a steady engine for job growth and higher incomes.
Today's problem is that the bridge between borrowers and lenders has washed away. Lenders won't lend, because they fear that borrowers cannot repay.
Think of the bailout as infrastructure investment. We need to rebuild that bridge.
The original Paulson plan was clearly imperfect. Fortunately, political horse-trading over the last week had gotten rid of its worst excesses. A good compromise leaves no-one happy, and by that metric, the revised plan is a success.
But there's an election in five weeks time, and our Congressional reps are more concerned with protecting their own jobs than with protecting yours. In fact, the single factor best explaining whether a rep voted against the bailout is whether he's in a close re-election race.
It's easy to oppose a policy, but true leadership requires constructive thinking. To those who oppose an unpopular measure, let's ask them a harder question: How would you resolve today's financial mess? Our two presidential candidates understand this dilemma, and despite some false starts, they're going to be part of the solution. We need Congress to be equally responsible.
Here's how to do it: Any policy called a bank bailout will fail. So let's call it what it is: an investment in our nation's economic infrastructure. And let's rebuild those broken bridges.
Kai Ryssdal: Justin Wolfers is an associate professor at the Wharton School of Business.
Comments
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From CA, 10/01/2008
The current plan is once again paving the way for a few big players. We are once again laying the foundations for big institutions to hold the country as a hostage in future & once again, down the road, the government will be “forced” to bail them out because they are too big to fail! There are better alternatives:
Reward regional and community banks and credit unions who didn’t play in the high risk mortgage market with a large pool of low rate money they could loan to credit worthy businesses and customers.
Start a national Real Estate Trust that buys foreclosed homes at their real value instead of some pre-negotiated-good o’ boy-bail-out value allowing the banks that made the inflated loans to eat their losses or fail. Then put the homes in a huge rent-to-own pool where people who can pay a market rent for 2 years or more earn the right to buy the home they’re renting. The supply of homes for sale would reduce and prices would stabilize. The trust would make money, Americans could live in the homes we built and people would take pride in the homes they are earning the right to buy.
If the government still insists on purchasing the mortgages from the ailing banks – at least purchase the “non-toxic” mortgages INSTEAD of the toxic mortgages. This will meet the objective of providing funds to the ailing banks but at the same time protect the tax payers. The plan as it stands currently is not rewarding prudent banks and taxpayers It instead is cushioning the full brunt of risky financial practices.
From poughkeepsie, NY, 10/01/2008
so the banks are good and politicians are bad eh? once again: the fed knew and encouraged it, the politicians took the money and unregulated it, the sec looked the other way, fannie and freddie gave it to the banks (and bought some too), the banks gave it to the people, and wall st. bought it from the banks. looks to me we have to blame ourselves for not having the where-with-all to keep an eye on these jokers. our forefathers are turning in their graves.
10/01/2008
The last time Justin Wolfer was on Marketplace, he had inferred that inflection in curd oil and gas will make our life better because it force real wages go up to adjust for inflation. The idea has fallen flat on its face. Gas is up but our wages aren’t. Wages don’t adjust based on inflation they adjust based on perceived productivity…. that discussion for some other time.
However now his is suggesting to dress up a bad bill with an appealing name to let it pass congress. I don’t believe that is a good idea. Socialism does not work. Socialism only cause more drift between the social classes. He wants inflation now to go up even further and taxpayer to foot the bill.
In a climate with crumbling infrastructure, a struggling poorer middle class, natural catastrophes that take more than 2 years to recover from, failing education and failing health care….. he want us to throw more money into the hole and hope that it will help us in the long run. ….
And for what… to stop the artificially inflated bubble of real estate from popping. To help the bankers and investors recover their money stuck in this market due to some very risky bets that they made trying to corner the middle class by artificially inflating home prices.
Pure rubbish…… Who invites him to give comments any way……
From Springfield, IL, 10/01/2008
Professor Wolfers is incorrect that "the single factor best explaining whether a rep voted against the bailout is whether he's in a close re-election race." Over the last 5 years, those who voted yes to the bailout received 54% more campaign dollars than those that voted no.
The financial services sector has contributed more to candidates for Congress, Presidential candidates, and political parties than any other sector, totaling $339,649,585 from 2007-present.
The sector has also contributed heavily to both John McCain and Barack Obama’s Presidential campaigns in 2007-2008: $22,108,926 to Sen. McCain and $24,860,257 to Sen. Obama.
The financial services sector has been a top campaign contributor for years, donating more than $2 billion to Federal candidates from 1989 through today.
Source:
http://www.maplight.org/node/43109
From WI, 10/01/2008
I disagree with the tone of Justin Wolfers comments to the effect that our elected and unelected representatives know better than we do what is best for us. The financial mess we are in is largely the result of too much debt and now we are asked to believe that creating an enormous amount of new debt will make things better? I believe that saddling me and my children and their children with incredible debt is not in my best interest and I am proud that my elected representative listens to the people who elected him.
10/01/2008
The use of the word blame connotes that a lack of bail-out is wrong- but is it?
I think voters are not supporting the bailout because they simply do not believe the predictions of calamity sure to follow if we let the market do its job. Further, do voters believe that their elected representatives understand global economics enough to make a good judgment? Do we believe that anyone running for office would speak the truth and say "I don't totally understand this." Why wouldn't Paulsen/Bernacke say anything, anything to cover the assets?
We have become a nation of non-believers, as the constitution-waving conservatives beg Uncle Sam to be the ultimate helicopter parent.
Is there anything a voter hates more than hypocricy?
From Ronkonkoma, NY, 10/01/2008
The bridge he suggests we build is a "bridge to nowhere". If the people cannot afford their existing loans, why have the banks make more money available to them. We need to spend several years paying down our debt, personal, corporate, and government.
From Mesa, AZ, 09/30/2008
If you want to build a bridge. Build a bridge and pay for it directly. We need them very badly and could pay honest corporations to build them. And we would have something to show for it. Thats better than injecting more smoke into the smoke and mirrors stadium.
This guy is a shill for wall street. Hope they bought him dinner tonight, and a Fosters.
Let me get this straight. True leaders go against their constituents? We can see where he stands democracy. And from the thought of the US gov owning wall street, so much for the republic too. Thank goodness some of this is falling during an election cycle so we might actually hold a couple of the stinkers accountable who vote for it.
There are plenty of solutions coming around including ones that might actually include some research as opposed to a free give away. Maybe we should first decide on the nature and accounting of the crisis before we throw money at it.
We ought to buy wall street the same way Warren Buffet does, if they have to get our money. If the taxpayers are going to ignore free market rules and buy companies.. Why don't we buy an oil company and kill two problems at once!
I wonder if any research exists on the benefits to the economy of universal health care compared to wall street bailouts.. Hmm. Seeing as how medical problems trigger bankrupcy, I just wonder.
Read the Shock Docterine by Neomi Klien. Justin I hope the 'free market' brings you and your family exactly what your fingers can earn in a sweat shop.
Let me get this straight. True leaders go against their constituents. Retard. Thank goodness some of this is falling during an election cycle so we might actually hold a couple of the stinkers accountable.
From Bethel, CT, 09/30/2008
Neither party has enough lipstick to make this pig attractive. The public suspects that their tax money will go to the same crowd who, by some combination of recklessness, greed, incompetence, arrogance, stupidity, and dishonesty, already made a mountain of other peoples' money disappear. We need to see some perp walks, and some more well-earned bankruptcies. Give the money to people and institutions that weren't the cause of the problem.
From Minneapolis, MN, 09/30/2008
I'm disappointed that Marketplace is taking a pro-bailout, pro-panic stance. Congress listening to their constituents, opposing increases in executive power, opposing fear-mongering, and opposing deficit spending is good for democracy - and what's good for democracy is good for the economy.
Marketplace needs to put the current crisis in better perspective relative to the savings and loan crisis, the Asian financial crises and so many other crises that were bad but not so bad that we can remember them. We have nothing to fear but fear itself - and lemmings.
From Tucson, AZ, 09/30/2008
Bail-out ?
The wrong ideas have been given to people about what is going on. I heard a CNN official say yesterday the "republicans were ignorant for listening to their constituants"! This is much deeoer than mass media is telling, maybe more truth should be exposed before any proposals are written ! The rush to get this through is a smoke screen of cover-up ! I would like to hear more about Obama's dealings with "Acorn", seems from the bit I have seen so far, Obama may have personally been resonsible for a large percentage of this proble.
Why is mainstream media still saying Bush is responsible for this ? When he addressed this exact problem over 2 years ago on the house floor, and the Democrats threw it in his face !
Then the real question, since mainstream media has become so left wing partisan, is WHY ? If mainstream media was honest, McCain would not even need to run a campaign to win hands down ! I am convinced the market meltdown and the Obama for president are tightly linked, but what else is involved to get most of the mainstream media to hide facts and endose someone who obviously is running for president of the wrong country ? Thank-You Marketplace !
From Chandler, AZ, 09/30/2008
I'm not blaming either party. I'm thanking those in each party who had the sense and principle to stand up to the Wall Street bullies.
I'm an engineer, so I'm going to put economic theory aside for a minute and look only at objective data. In fact, I'm not going to even look at the contents of the proposal, just the objective facts surrounding it. I think there is much to learn from this data alone.
1. Those who support this bill have been completely wrong with their predictions so far. The track records of financial foresight provided by Dodd, Paulson and Bernanke have been well below par. The best hedge fund in the world would be one where the managers just listen to these three guys and bet the opposite.
2. The people who have been predicting things like the failure of Fannie Mae, the danger of derivatives and the collapse of the housing market have always been derided as fringe types and "doomsayers." In retrospect, they seem to have had a pretty good handle on things well before we went into crisis mode.
3. Look at the roll call from Monday's vote. The congresspeople who have voted for this bill are the big name ones, the same ones who receive the largest contributions from banks: Dodd, Obama, Schumer, Kanjorski. The ones voting against it are the ones you haven't heard of that don't get those contributions.
4. Paulson has been an investment banker for most of his life. His friends are investment bankers. Much of the argument against this bailout places blame back at his feet and those of his closest friends. It is not a criticism of his character, only a comment on human nature, to assert that he could not be able to have an objective view of the situation.
5. When this administration has urged us to hurry to a decision, we have made our decisions with critical gaps in information. The Iraq War was based on faulty intelligence. The Patriot Act was passed through without allowing enough time for even the world's fastest speed reader to make it from cover to cover.
6. Congress is being flooded with phone calls like never before. Nearly 100% of the calls are against the bailout. The American citizens, the ones this bailout is supposed to help, whose only skin in the game is their own financial future, have clearly shown that they do not believe this bailout is a good idea.
In proposing this bill, Congress is asking Americans to rush to judgement on the advice of historically blind and inherently biased parties, while ignoring both their own judgement and the judgement of the commentators whose advice could have helped us avoid this whole mess.
There is a reason that the majority of citizens don't support this bill. It's the data, Stupid.
09/30/2008
Blame who for what? This article should be titled "Thank Both Parties for Defeating The Bailout" It saddens me that Marketplace has taken such a strong stance on supporting the bailout.
From Adair, IA, 09/30/2008
Why does the public not understand that the bailout bill does not mean they are spending any money but investing the money in mortgages. I for one believe the government would make money on this investment. Maybe that is why they are not doing it, I have never seen our congress make good financial moves.
The congress repealed the Glass-Steagel Act in 1999. That is the root cause of the problems in the residential mortgage market. There were not commissioned salesmen out pushing loans before that act was repealed. Mr. Grassley of Iowa said those who caused this should get on their knees as the japanese do begging forgiveness. I wonder when Mr. Grassley is going to do this when he voted to repeal the Glass-Steagel act in 1999 and is part of the cause.
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