Paulson's Plunder -or- Financial Armageddon?

As I type this, miserable with a weird cold, the House of Representatives has voted against the bailout plan proposed by the current Secretary of the Treasury, Henry Paulson, and the stock market has dropped 600 points or so.

Now, I'm in a weird position here. I'm not shocked by any of this. In fact, I predicted it (alas, without sufficient specificity to know precisely when it would happen), and I actually think worse news is on its way.

So sue me for being gloomy. Or blame it on the cold. But it just made sense to me -- we'd been so arrogant in our financial dealings and assumptions (we = Americans generically) that it seemed obvious to me that things had to collapse. In the past four years, I've said as much to two different financial advisors, both of whom looked at me funny and decided I was just "risk-averse."

Well, despite my prescience, I didn't really know what I was talking about, and so I've learned a bit in the past two weeks. Here's what I think I understand now: First, this is absolutely an instance of our having adopted a capitalist approach to gains and socialist approach to losses. And yes, the people who got so greedy should suffer the consequences. But I've seen the enemy, and they are us (or however Walt Kelly first put that). We're the ones who voted for deregulation, celebrated tax cuts, day-traded, bought homes with weird mortgages, invested in funds that promised big yields, and generally got greedy. Now, I know YOU aren't greedy/wealthy/knowledgeable about the stock market. You may not have a subprime mortgage, a house that's over-valued, or a job that's teetering on the brink. You may feel like you're the victim here -- that your economic security is going to go down the tubes because of someone else's greed and lack of oversight. And you'd be right. But you'd also be wrong to think that you had nothing to do with this crisis.

I do know some people with no connection to the current economic crisis; they are very poor. I agree, they had nothing to do with this. But the rest of us . . . well, that's a different story. We all benefited from the attitude, left over from the Reagan administration, that there was no reason why we couldn't have it all: artificially low gas prices, affordable housing, big SUVs, etc. We just are not very frugal in this country -- it's not in our culture. We live large, and we worry about tomorrow sometime next week. And we all did too little to say that the Reagan voodoo economics were dangerous. We got a huge reprieve with the Clinton administration and the dot com explosion; remember when there was no deficit? Wow, does that seem a long time ago.

And then came the current administration, which cut taxes and raised spending, particularly for a crazy war. (As an aside, did you know that there are people who actually believe that the wealthiest 1% has a legitimate complaint because when some past president raised taxes on the wealthy, that increase was promised to be temporary, so really their taxes should come down all the way to -- oh, the 1960s or something? Wow.) So now we have a massive deficit, and it's getting harder and harder to think that we'll ever be able to grow our way out of it, ever. What a legacy for our kids.

The thing about the bailout plan that bothers me is that it probably isn't enough at this time, so the next president (President Obama, if I have anything to say about it) will have to go through this process all over again. And that's why I think we need to back up and look at this whole thing a different way.

The current bailout is intended to help out the financial institutions who are holding all this bad paper that's basically every risky mortgage roled up into some weird sort of security. On the one hand, why should the taxpayers buy these securities when we didn't create the underlying problem? Let them eat the losses. Well, of course, it's not that simple -- if the financial institutions fail, and credit dries up, businesses will start to fail in huge numbers, people will lose their jobs, so they default on their non-risky mortgages, and the next thing we know, we've got a depression on our hands. It'll look different than the 1930s, but it will be just as bad.

But -- and here's where I get muddled up in my thinking -- why are we only getting one option? For example, why can't we pump money into the economy in key sectors (infrastructure, education, child care, health care) that can't be outsourced, need to be done, and help all of us in more tangible ways? Why can't some of the $1 trillion (counting the $700 billion plus the funds already spent on economic recovery/bailouts) be spent, as the language has it, on Main Street (or Elm Street or Martin Luther King, Jr. Boulevard)?

My congressman, Chris Carney, just voted against the bailout. Hmmm. He's a smart guy -- does he believe that to vote for it would be political suicide (he's running against a crazy-conservative rich guy), or does he believe a better plan can be passed, or does he favor letting the markets work it out. I'll be looking forward to his explanation -- I hope it's more than just "I heard from you, the constituents, that you didn't approve," because I'll tell ya, I don't think that we (the constituents) know precisely what's really going on.

I don't know what will happen if no bailout plan is passed, and I don't think it's even sensible to ask, because something will be done, even if it's too little and too late. But I guarantee -- come January. President Obama's going to have a lot more opportunity to be great than even we'd imagined. And we're all going to have a chance to get smarter about money. It's about time.