The American strategy of rewarding irresponsibility
These are days of fear for most Americans. You can almost feel the creeping paranoia here. As the economic watering hole dries up, the creatures that depend on it are beginning to look at one another differently.
But for the greedy, the incompetent, and the outright stupid, it's a new morning. A shot of redemption is at hand, courtesy of everybody else.
Treasury Secretary Henry Paulson has now decided that the U.S. government is likely going beyond merely plowing hundreds of billions into banks that helped drive the U.S. housing market to collapse. Now the Bush administration is leaning toward helping out credit card issuers, too.
These companies are the firmaments of corporate avarice that have for years been stuffing people's mailboxes with billions of deceptive invitations to sign up for even more plastic.
They are the same companies that headquarter themselves in South Dakota and Delaware, states that have no anti-usury laws, the better to sock their clients with Tony Soprano-level vig.
The same companies that consider encouraging a lifetime of unreduced debt a valid business model.
Of course, the government's plan is to help the credit card companies with their debt, not their customers. That should prove really popular.
Another hand out
That is the Republican idea of being helpful. But the Democrats are not much different.
There was Democratic House Speaker Nancy Pelosi, currently the most powerful politician in Washington, posing in her office with the heads of GM, Chrysler and Ford, plus the leader of their mega-union, the UAW.
When it comes to automakers, the Democrats are soothing — $25 billion? $50-billion? Not to worry. You're vital to our nation's economy, says the ascendant party. Our "economic backbone," in the words of president-elect Barack Obama.
Now, of course, these are the same companies that spent years building inferior cars, then switched to marketing gas-slurping whales while lobbying Congress to block any new fuel-efficiency standards. (GM's boss at one point famously scorned the idea of hybrid vehicles.)
These are the same companies that for decades bought labour peace by promising retirement and medical benefits that they couldn't afford.
Bailing them out should thrill Americans, especially the ones unfortunate enough to be working for non-vital, non-backbones like retailer Circuit City, which just declared bankruptcy. Or Linens-N-Things. Or DHL, which reportedly plans up to 8,000 layoffs in Wilmington, Ohio, population 12,000.
Pay my mortgage
Then there's the ever-widening plan to rescue American homeowners themselves.
These are people who bought homes they couldn't afford and, now that those homes are sinking in value, are walking away in large numbers from the debts they contracted to pay.
These include homeowners who, in many cases, lied about their incomes and wealth to obtain unrealistic mortgages. People who had no down payment to offer or even, unbelievably, pocketed cash at closing, cash that came as an incentive to take on a foolish mortgage they shouldn't have signed. Many even refinanced their homes to take a vacation or buy a car.
The government is now considering direct help to these mortgage holders, but only to those who are two or three months behind on their payments.
That should be hugely popular with taxpayers who actually saved up a down payment, took out a responsible mortgage and have been making their payments on time.
Economists have terms for what the U.S. government is doing here. Moral hazard is one. Disincentive is another.
But Spencer Bachus, a Republican congressman from Alabama, offered more digestible language a few days ago, and it's worth repeating.
On the plan to help only homeowners who are badly delinquent: "That, to me, is only going to encourage these people," he said. "I actually had a constituent that called us and said, 'We're not going to qualify for this program because we're current. What should we do? Should we miss three payments?'"
On the plan to bail out automakers and their highly paid, politically connected, unionized workforce: "I've got a sawmill worker in my district who is making $15 an hour. And he's working hard every day. And he gets very dirty every day. And it's a risky, hot job, or it's very cold. It's usually very cold or very hot. And he's making $15 an hour. And we're taking his money and we're paying it to a company that's paying $75 an hour."
And on bailing out Wall Street: "My constituents usually get about a $250 bonus at Christmas. They're already asking me 'Did you take my money and give it to a company that is paying some of their employees $250,000 at Christmas?'
"We're going to get those questions," he warned. "And we need to be prepared to answer them."
A plea of necessity
So far, the political leadership in this country has no answers, just apologies and the plea of necessity.
Treasury Secretary Paulson told Americans recently that the government is "humbled by its mistakes." President George W. Bush told a Manhattan audience he's "a market-oriented guy, but not when I'm faced with the prospect of a global meltdown."
Spencer Bachus, meanwhile, was warning of something just as immediate: a domestic political meltdown.
"People have never been more hostile," he told the House committee on financial services.
Bachus urged his fellow legislators to find some way to make the bailouts more equitable and to not just keep spending till the government runs out of money. "If we don't, I think the American people will simply rise up and stop us."
Now, of course, Bachus is a Republican, one of those supposedly ideological conservatives who nonetheless abetted the Bush administration's out-of-control spending and simultaneous tax cutting, policies that have sucked the government into a historical mire of debt. What was he saying then?
But Democrats can be a pretty ideological bunch themselves. And as they sweep triumphantly into Washington with a belief in the redemptive power of government that borders on the religious, it's probably worth listening to people like Spencer Bachus.
The Republican party was founded on notions of fiscal probity and guarding the taxpayer's dollar. And no matter how far the party has drifted from those principles in the past couple of decades, they are no less valid.