Ryan Hagen
Assistant Perspectives Editor
Boredom, ignorance and panic produce a rare but dangerous combination. As the government scurries to contain last week’s financial meltdown, most Americans have fallen victim to this response.
If the public’s vaguely informed insistence on immediate reform pressures Congress into rubber stamping everything the Treasury Department suggests, it could create more troubles than Wall Street failures.
Until last Wednesday, Americans only dimly understood Wall Street. It was complicated, it was incredibly technical and — depending mostly on one’s partisan affiliation — it was either humming along with some difficulties but strong “fundamentals” or it was on the verge of disaster.
Then came “Black Wednesday.” Top lenders failed, the market panicked and everything changed. After a day of uninterrupted coverage of the financial crisis, the public’s understanding of financial markets was transformed.
The economy, people now knew, was complicated, incredibly technical and — also depending mostly on one’s partisan affiliation — either in the midst of the worst disaster since the Great Depression or about to sell its free market soul.
Although many lawmakers expressed profound misgivings about the taxpayer-funded bailout of American International Group and other emergency measures, they called the big government approach a “necessary evil.”
And rightly so — general philosophies sometimes must be set aside for specific emergencies.
The Federal Reserve is rarely noted for its eloquence, but its chairman, Ben Bernanke framed the situation well. “There are no atheists in foxholes and no ideologues in financial crises,” he said.
He was referring to the need for the Bush administration to at least temporarily modify its hands-off stance on market regulation and involvement in private industry. Many say these policies — cornerstones of conservative economics — fueled economic growth, but also contributed to the mortgage failures at the center of the current crisis.
Undoubtedly, the administration will employ similar but stronger rhetoric as it urges Congress to quickly approve its $700 billion plan to buy toxic debts.
By freeing banks of debts they can’t afford to cover, the proposal should prevent a lending freeze and economic stagnation like that which plagued Japan a decade ago (a more realistic fear than 1930s-style breadlines). But it should not fly through Congress unstudied.
Despite members’ desire to pass quick relief and recess for campaign season, this bill raises major concerns.
To repeat a turn of phrase that will soon become clichéd, while saving Wall Street, Congress must not ignore Main Street. It is debatable whether the solution is the Democrats’ $50 billion job-creation package, but deliberation is key.
Congress must also prevent foreign banks, which are included in the deal if those banks have “significant” United States operations, from funneling their bad debts into this country at taxpayers’ expense.
Furthermore, massive paychecks to the executives whose irresponsible lending precipitated these problems only encourage bad business.
And, as Wall Street undergoes its largest restructuring in 70 years, Congressional oversight must be assured. The last time the legislative branch retreated to allow quick action following an emergency, it passed the Patriot Act — applauded in the short term, but later bemoaned.
Congress has a responsibility to buckle down, scrutinize the proposal and craft meaningful legislation. The public and the president may press for hasty approval, but the magnitude of the crisis only amplifies the dangers of reactions born out of panic.
09-25-2008