Bagging on the Bailout

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BAGGING ON THE BAILOUT….Atrios is annoyed:

If we remember way back to about 2-3 weeks ago, Hank Paulson was promising that there would be NO MORE BAILOUTS. Then, suddenly, we needed a giant BAILOUT RIGHT NOW. The media typically responded by using the Dow as a proxy for the economy/magnitude of the crisis in order to help hype the necessity of a massive bailout. And since the bailout passed, the Dow has tanked.

OK, point taken, but there’s a big dollop of unfairness here. It’s not as if Paulson and Bernanke just changed their minds for no reason, after all, or that a systemic bailout was a dumb response, or that the Dow is meaningless. Remember the sequence of events here.

Three weeks ago Paulson and Bernanke announced that they wouldn’t bail out Lehman Brothers. Maybe that was a risk worth taking, maybe it wasn’t, but in any case it didn’t pan out. In fact, it was a disaster. So unless they wanted to sit and watch the U.S. financial system melt down completely, P&B didn’t have any choice but to change their minds. Better that than to stubbornly cling to their free market principles no matter what the consequences, right? And while the Dow may not be a great proxy for the entire economy, the credit markets really are in big trouble and the Dow reflects that. What’s more, the S&P 500 reflects it even better, and it’s fallen even further than the Dow. Finally, today’s drop is almost certainly a reaction to European problems and the inability of the EU to offer a coordinated response, not a reaction to the Paulson plan.

Now, the Paulson plan may turn out to be bad policy. Plenty of economists think a pure recapitalization scheme would be a better bet. But the mere fact that P&B responded to events and offered up a systemic plan after a solid year of dike-plugging efforts and a final scary-as-hell week hardly counts against them.

And as long as we’re on the subject, here’s another question: is the problem with the credit markets fear or is it bank capitalization? If the problem really is capitalization, then it’s not fear that’s keeping banks from making loans. The problem is that they just don’t have the money. And yet plenty of economists who think capitalization is the fundamental problem also talk as though fear is really the driving force behind the panic. Which is it?

THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

THE BIG PICTURE

You expect the big picture, and it's our job at Mother Jones to give it to you. And right now, so many of the troubles we face are the making not of a virus, but of the quest for profit, political or economic (and not just from the man in the White House who could have offered leadership and comfort but instead gave us bleach).

In "News Is Just Like Waste Management," we unpack what the coronavirus crisis has meant for journalism, including Mother Jones’, and how we can rise to the challenge. If you're able to, this is a critical moment to support our nonprofit journalism with a donation: We've scoured our budget and made the cuts we can without impairing our mission, and we hope to raise $400,000 from our community of online readers to help keep our big reporting projects going because this extraordinary pandemic-plus-election year is no time to pull back.

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