Our financial crisis is moving like a tidal wave. Online news sites are seeing record numbers as readers flocking to the Web, concerned about what may happen next in their households.
Presidential candidate Sen. McCain surprised reporters and political observers Wednesday afternoon by announcing that he plans to “suspend” his campaign to work on the financial crisis and arguing that he and Sen. Obama should cancel their upcoming debate. McCain appeared on television, warning that this situation is so dire that, if it is not resolved quickly, “Credit will dry up. Devastating consequences for our economy. People will no longer be able to buy homes. Life savings will be at stake. Businesses will not have enough money to pay their employees.”
Those are scary words.
A CNN commentator, immediately after McCain spoke, said journalists at CNN were scrambling to understand this move by McCain. It could be a helpful move. It also signals the desperation of the Republican Party. Many political observers on Wednesday were saying that President Bush’s original $700 bailout plan is “dead on arrival” in Congress. McCain himself said as much.
So, the crucial issues we’re talking about here at OurValues are unfolding very rapidly. It’s the major global news story of the week.
Today, I’ve invited Dr. Jerry Davis to return and write about how he sees these forces moving.
THEN, PLEASE, we really want to know what you’re thinking this week. Click on the “Comment” link above and share with us even a few words about what you think should happen — and how this is affecting you.
Here are Jerry’s words …
Things are moving faster than
usual in Washington. Since I wrote my previous post, the two remaining
big investment banks (Goldman Sachs and Morgan Stanley), with the strong
encouragement of the Fed, have agreed to convert to bank holding companies.
The SEC has temporarily banned short selling in the shares of financial
stocks, including GE and GM. (Short selling is a way to make money
on declines in share prices and is regarded by economists as essential
for financial market efficiency.) And the proposed $700 billion
bailout of Wall Street has encountered a wall of resistance from both
conservatives and liberals, both in Congress and in the public at large.
Those on the political right
have argued that the bailout violates basic principles of the free market.
If financial firms make bets that go bad, then they should pay the consequences,
not taxpayers. Sen. Bunning (R, KY) said of the proposed bailout:
“It’s financial socialism, and it’s un-American.”
(R, AL) stated, “I think we’re going down the road of France now,
in all due respect for my French friends.” (This was not meant
as a compliment.) Shelby further stated that the proposal being
debated would make the Treasury Secretary more powerful than the President — it
included no means of oversight by the Congress, and explicitly ruled
out appeals to the courts, giving an unelected official vast economic
power without accountability.
The political left is far more
comfortable with government intervention in the economy, but they don’t
trust the Bush Administration to implement it. Some saw a parallel
with the run-up to the Iraq war, in which dire claims of impending disaster
were used to rush Congress into approving a course of action that many
regretted later. Others saw a “fox and hen house” scenario:
Treasury Secretary Paulson made a personal fortune estimated at $500
million in his 32-year career at Goldman Sachs, which could perhaps
influence his sympathies, and those charged with implementing the proposal
would almost certainly be drawn from Wall Street.
In my last post I argued that
the US may need another Roosevelt-style intervention that addresses
not just finance, but economic security more generally. We have
a post-industrial economy but are still living with institutions designed
for the economy of the 1930s
But something else has changed
since the 1930s that might make institutional renewal very difficult: Over the past decade, the federal government has seen a brain drain.
Individuals that in times past would have had a career in “public
service” now work for private contractors that have taken on some
of the basic tasks of government, from operating its computer systems
and collecting income taxes to protecting diplomats and interrogating
prisoners overseas. This movement started during the Clinton Administration
with the FAIR Act of 1998, which effectively mandated outsourcing of
tasks that were not “inherently governmental.” But it has accelerated
greatly over the past eight years. Spending on contractors has
doubled from $200 to $400 billion per year since 2001.
High-level government service
has long been a stepping-stone to lucrative jobs in the private sector.
For example, every member of the Joint Chiefs of Staff in 2002 currently
serves on the board of a military contractor. But now this mentality
has gone retail. For many, government service is essentially an
internship for a better-paying job in the private sector.
Renewing our regulatory institutions
may be necessary, but it may not be possible if many of the most talented
and experienced civil servants have moved on to the corporate world.
This is an outcome that neither the right nor the left would find pleasing.
Click on the “Comment” link above, or if you prefer to drop us a quick Email,
you can do that as well. We’re also still inviting readers to sign up
for a couple of in-depth surveys Dr. Baker plans to conduct a little
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