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March 17, 2008

The Ugly Political Question, In 2008 And 1988

Here's reader email from Talking Points Memo:

I am appalled, though not surprised, at the complete silence by the candidates on the last few days' events on Wall Street and the world's stock, bond and currency markets. This has far more effect on all of our futures than racist comments by the oxygen deprived brains of some old political or spiritual leaders. I know why Clinton and McCain are not talking about it: too many of their biggest supporters had too much to do with what happened...What about Obama?...

Maybe if the media first tried to understand the problems, then asked the proper questions until answers were forthcoming or it was clear the candidates are afraid to ask them, political coverage would be more than the extreme sports coverage it has turned into.

I strongly suspect we're seeing a replay of what happened with the S&L crisis in the eighties. The business details aren't exactly the same, but the political dynamics are.

At first the S&Ls were a fairly small problem. But fixing it when it was small would have required the financial industry to take a big hit. So Wall Street wanted to keep the game going until the problem was gigantic, and could only be dealt with by a federal government bailout. Meanwhile, both Republicans and Democrats were at fault, so they collaborated to prevent it becoming an issue during the 1988 election. Working together, they were able to cost the US taxpayers hundreds of billions of dollars.

Everything's the same today, except this may be an even more impressive, multi-trillion dollar success.

Here's an excerpt from William Greider's 1992 book Who Will Tell the People describing the process with S&Ls. It's long, but well worth reading:

The ugly political question that explains the politicians' stalling and obfuscation was always this: Would the taxpayers be compelled to put up the money to resolve this financial breakdown?...[I]f the taxpayers weren't going to pay for it, then the industry itself would have to. The modest $10 billion bailout enacted in 1987 employed federally guaranteed borrowing to raise the money but the funds were in theory going to be repaid by the S&L associations themselves...

Thus, if Congress had provided prompt, adequate financing to solve the crisis, that would have meant raising the industry's premiums sharply...

The saving and loan industry proposed a political alternative: Paper over the problem for now and let the next president deal with it...

Kenneth McLean, staff director of the Senate Banking Committee...explained the subtext driving the congressional decision:

"You were talking about taking away industry money and they said, look, we're paying for this mess...So the message was: Let's let the problem build up and dump it on the taxpayers."

Congress, in effect, acquiesced to that logic and so did the Reagan administration. Sure enough, it was dumped on the taxpayers.

A delicate political problem remained for both Democrats and Republicans. Having temporarily papered over the crisis, now they would have to get through the 1988 presidential election without the people finding out. This proved to be relatively easy since the only remaining power center that might have turned this into an embarrassing campaign issue was the news media. Politicians in both parties counted on political reporters not to catch on and they were not disappointed...

The financial industry naturally shared the politicians' interest in discretion, but the bailout plans were not closely guarded secrets. An inquiring reporter could obtain copies with any special effort at digging. Robert Dugger, lobbyist and chief economist of the ABA, explained the politics:

"Everyone knew the game was: Democrats don't bring this up. Republicans don't bring this up. Because a firefight on this issue will have more bodies on both sides than anyone wants to lose. The financial community knew that and we all knew where the play was: Wage the presidential campaign on all issues, but don't use the thrift crisis. We all know it has to be dealt with. We'll do it right after the election"...

At the White House, the immediate goal was to get Ronald Reagan safely into retirement without having his final year in Washington marred by an embarrassing taxpayer bailout for a deregulated industry. When Dan Brumbaugh was briefly considered as a candidate for the job of chief S&L regulator, the word came back to him through political channels: "If this guy really wants this job, he's going to have to sit down with Howard Baker [Reagan's White House chief of staff] and assure Baker that we can hold things together until this president gets out of town."

—Jonathan Schwarz

Posted at March 17, 2008 04:51 PM

They're as good on this as they were on Enron. After the collapse, a couple dig around in the rubble and come up with a quickie bestseller.

Posted by: donescobar at March 17, 2008 05:47 PM

My guess is that the 'punt it forward' mentality is predominant now as well. The WH will do anything to keep charade running until a Democrat is in office.

If the worst of this doesn't hit until Obama is in office then the wingnuts will hang Depression II around the Democrats necks as proof that they're unable to govern.

The public is just stupid enough to swallow that line, too.

Posted by: Creeping Coin at March 17, 2008 06:06 PM

So who now, confronted with the orders-of-magnitude increase in the scale of the bailout called for to address this debacle in comparison with that earlier example, would choose to deny the reality of Progress. Only mean-spirited and benighted souls utterly lacking in breadth of vision would brazenly disregard this self-evident testimony to the Onrushing Greatness of American Capitalism and its factotum, the American Government. We need only Stay The Course, and all will be well. The silence of the candidates for the post of Maximum Leader bespeaks their confidence on this point; there is naught to question, hence there is naught to discuss. Such gibble gabble is only for dumb bunnies. Thankfully , the resident autodidact, between recurring episodes of publically lusting after the pudenda of slavic women (all of whom, curiously, seem to be stuffed with black powder and fitted with fuses), will remonstrate sternly with all such weak-willed Untermenschen and teach them the error of their ways.

Posted by: JerseyJeffersonian at March 17, 2008 06:16 PM
If the worst of this doesn't hit until Obama is in office then the wingnuts will hang Depression II around the Democrats necks as proof that they're unable to govern.

The public is just stupid enough to swallow that line, too.

All the more reason to elect McCain! No more punting downfield! Let the Republicans drive a stake through the heart of democracy, militarism and what they've made of libertarian flavored capitalism.

I suspect that the Bear Sterns bargain buy will toast some mutual funds and 401Ks that were invested thataway. And the Fed's constant dropping of the interest rate is killing both the saving incentive and the value of the dollar. Pretty soon we'll be throwing greenbacks into the bonfire to keep us warm the way this is headed.

Can't save, can't invest. To the pitchforks and torches!

Posted by: angryman@24:10 at March 17, 2008 06:24 PM

a small point as i am not going to original link . having stopped reading these dem shills .
DUH ! he should do some research before putting out lame stuff . obama has STRONG baking from FINANCE CAPITAL . they were among the early bakers of his candidacy and for good reasons .

Posted by: badri at March 17, 2008 07:14 PM

Spelling is a virtue.

Posted by: McDuff at March 18, 2008 12:25 AM

spaces before periods, international speller

Posted by: hapa at March 18, 2008 01:18 AM

well, deposit insurance and the S&L industry were/are basically New Deal creations. And yes, you dumbfucks will pay for the war and maybe for Wall St (but probably not). Nader 2000! : )

Posted by: xyz at March 18, 2008 03:28 AM

You know, sometimes it's so thick you don't know if it's shit or fog. In today's WaPo, there's a column by Allen Sloan of Fortune magazine; it's somewhere in the front section but you can read it online. The whole column is about the impending Social Security meltdown in 2016 or 2017, and it's gonna be bad, people, rilly rilly bad, it's gonna be terrible, pay attention now! And it's going to be bad because it's invested in Treasuries. So the solution, he says, is to invest in other assets. Of course.

He also goes on about how if we'd taken the surplus when we had it and invested it, why, then everything would be wunnerful. But he says nothing about how we are now 'investing' our taxdollars -- and they sure as hell aren't surplus dollars are they?-- in Bear Stearns.

I hadn't thought about how very deliberately this sort of kabuki concern for our financial stability is used to keep people from understanding just how badly they are being screwed. It's probably not really coincidental that this column is being printed now.

Posted by: Aunt Deb at March 18, 2008 07:18 AM

I do not understand why people can call people who post on this blog "dumbfucks" and not get banned or deleted.

Posted by: Susan at March 18, 2008 09:02 AM

Oh Dean Baker is a DF, not just a DB. And for all your squawking, Wall St is not collapsing. There is no real comparison to be made between the S&L crisis and the present. And as before, may I please request you people stick to stuff you understand? Teacups, for example. Or the unfairness that nobody takes your silly opinions seriously. But econ, law, policy and history are clearly not your strong suits.

Oh, Bear Stearns shares at 3.75 is looking like a good bet, but I think the shareholders eventually get at least 10, maybe 20. God, I am a genius, as well as a great fuck.

Posted by: xyz at March 18, 2008 09:24 AM

Ugh, my American ex-GF (now chunky and boring) husband think TPM is the *only* reliable source of news. That dumbfuck hsa a PhD from princeton in physics too. Eh, I read Economist, the FT, Platts O&G report, mergermarket, Vedomosti, the NYT, and a variety of trade journals. Needless to say, I have a pretty good grasp on what is happening in the world, in detail and from the so-called 30,000 feet altitude perspective. Knowledge. It's a powerful thing, may I suggest you DFs and DBs try it sometime? : )

Oh, and younger, smart, fashionable, fit and trim girls. Man, when I am in the US I am horrified at American womyn.

Posted by: xyz at March 18, 2008 09:30 AM

Headline in today's Plain Dealer business section: "Is my money safe? Barring disaster, accounts held in commercial banks should be fine."

And that's supposed to be comforting. "Barring disaster," like, say, a trillion dollar illegal and unconstitutional war, or "should be" fine. Christ on a crutch.

Posted by: catherine at March 18, 2008 10:43 AM

well, if you dumbfucks rely on the Plain Dealer's financial pages to know what's going on, no wonder you sound so fucking dumb all of the time.

Meanwhile, Bear Stearns is up another 30% today, from 3.75 yesterday mid-day to 6.25 now. The sky is not falling, the market merely got spooked and is now settling down. And all the brokerage stocks are up sharply today.

Posted by: xyz at March 18, 2008 11:08 AM

Nota bene: aint no bankers or brokers defenestrating themselves

That's the clearest evidence possible that the fix is in, and nobody in the oiligarchy is gonna suffer a dime's worth of real loss or a minute's worth of discomfort...

I'd feel a whole lot better about this if the boss of the aptly acronymed "BS" had followed--or better yet, preceded--Assif Mondvi out a window yesterday...

Posted by: konopelli/wgg at March 18, 2008 12:13 PM

I do not understand why people can call people who post on this blog "dumbfucks" and not get banned or deleted.

Something about the bourgeois belief in "free speech", is my guess.

Anyway, I don't give a shit. Being called a dumbfuck by someone you actually have some respect for must be painful, but coming from this asshole, I take it as an honorific. "Why, thank you sir! Dumbfuck it is, then!"

And really, the most shameless Bolshevik propagandist couldn't create a more outrageous representation of international capital than our friend xyz. I suspect he's part of a Georgian black-ops program, with copies of all his emails sent to Eastern European bloggers, as evidence that "American capitalists are boasting on their websites about their plans to steal our money and ravish our women!"

Posted by: SteveB at March 18, 2008 12:57 PM

DAMN SteveB, are YOU a mind reader? I've been thinking I was wrong about Quebec all morning. Soviet Bloc is a much closer fit.

Posted by: Mike Meyer at March 18, 2008 01:38 PM

whoever you are, i don't think a webchat "borat" will sell, people. give it up.

Posted by: hapa at March 18, 2008 02:38 PM

Anyway, I don't give a shit. Being called a dumbfuck by someone you actually have some respect for must be painful, but coming from this asshole, I take it as an honorific. "Why, thank you sir! Dumbfuck it is, then!"

SteveB, nice, very nice.

Posted by: catherine at March 18, 2008 06:16 PM

Oscar Wilde, on being handed a rotten cabbage at one of his opening nights: "A million thank yous, my dear sir. Every time I smell it I shall think of you."

Posted by: MFB at March 19, 2008 03:16 AM

I guess I gotta learn to read chinese,now.

Posted by: Mike Meyer at March 19, 2008 03:06 PM


Maybe you're on to something...If you asked Nancy real nicely - in Chinese - perhaps that might get some action. I mean, has anything else worked?

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