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REUTEMAN: Ironies abound in a crisis

By Rob Reuteman, Rocky Mountain News (Contact)

Published September 20, 2008 at 12:05 a.m.

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How bad is our financial situation? Consider this:

* Just Wednesday night, Speaker of the House Nancy Pelosi was her usual bellicose self, blasting the Bush administration's $85 billion AIG infusion, which propped up the world's largest insurance company for the time being.

It's "one glaring example of what bad managers the Bush administration has been of our economy," she said.

* Thursday night, she was gathered around the conference table at her Capitol Hill office for what's been called "an urgent and unusual evening visit" with Fed Chief Ben Bernanke, SEC Chief Chris Cox and Treasury Secretary Henry Paulson.

* Friday morning, Pelosi issued a statement: "Once Congress receives the Bush administration's formal proposal, we will examine it expeditiously. As I told the president this morning, we are committed to quick, bipartisan action. . . . "

So, it's that bad. Also seated at Pelosi's conference table were Sens. Charles Schumer, D-N.Y., and Chris Dodd, D-Conn. "When you listened to (Bernanke) describe it, you gulped," said Schumer at a Friday morning news conference. Dodd said they were told "that we're literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally."

When Schumer said the meeting was "somber," Dodd added, "Somber doesn't begin to justify the words. We have never heard language like this. What you heard last evening is one of those rare moments, certainly rare in my experience here, is Democrats and Republicans deciding we need to work together quickly."

Those anecdotes at least give us a sense of the gravitas. We're woefully short on details of the Bush/Bernanke/Paulson plan to right the country's financial ship. But knowing that the short version is enough to mute some of Bush's harshest critics speaks volumes. The true scope of the problem appears to be just dawning on some of these folks, so we can't expect the scope of the solution to be nailed down yet. We know things like investors pulling $224 billion from money-market funds in the seven-day period ended Thursday - $89 billion on Wednesday alone. We can scream about a $500 billion bailout, but if the alternative is that your and my retirement accounts and our market investments and those of our cities and states go to zero - well, what do you say to that?

The important thing to remember when you throw around terms like bailout is that this taxpayer money is likely to be repaid with interest. We're not exactly pouring it down a rat hole. The AIG deal Paulson engineered looks particularly favorable for the lender of last resort - us.

Fascinating to watch this week is the federal government taking over huge chunks of the U.S. economy, rendering the bastion of capitalism vulnerable to critics.

Financial historian Ron Chernow, told The New York Times, "We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams."

Mario Monti, former antitrust chief at the European Commission, added, "For opponents of free markets in Europe and elsewhere, this is a wonderful opportunity to invoke the American example. They will say that even the standard-bearer of the market economy, the United States, negates its fundamental principles in its behavior."

But as Times columnist Floyd Norris wrote Friday, "If these nationalizations smack of socialism, it is closer to the Marxism of Groucho than of Karl."

Mohammed El-Erian, co-CEO of PIMCO, the world's largest bond investor with nearly $700 million under management, said Friday, "The foreigners are torn right now. On the one hand, they are stunned by what is happening to the U.S. financial system. On the other, they are impressed that we are getting a policy response that is relatively fast."

Mark Zandi, the usually solid spinmeister at Moody's Economy.com, told CNN on Friday, "I'm confident this will work. The federal government is committed to backstopping the nation's financial system . . . The details are important but secondary."

To comment on this column, go to Rocky MountainNews.com/business.

Comments

  • September 21, 2008

    10:12 a.m.

    Suggest removal

    HolyCowBatman writes:

    "... this taxpayer money is likely to be repaid with interest."

    In your dreams.

  • September 21, 2008

    11:43 a.m.

    Suggest removal

    BMat writes:

    This President opposes National Healthcare but created the biggest expansion of our extant National Health system (Medicare) in it's history with the introduction of Part D to cover prescription drugs.

    This President opposes government meddling in private business but has made the US government the biggest stakeholder in Fannie May, Freddie Mack and AIG. It's the biggest government take over of private enterprise in the history of our once capitalist country.

    This President has lied repeatedly about using war as a last resort, the reasons he would go to war and the objectives of the war should he enter into it (read: WMD). Just one of his wars costs this government $10B/mo. Yes, that's a "B" for billion and a "B" for big government. As in bigger than ever before.

    And John McCain is running on the tried and true republican platform of "Smaller Government," and has freely admitted his ignorance of economic issues.

    Somebody who believes this line of BS please post here and explain why you're so gullible. Anyone?

  • September 21, 2008

    3:19 p.m.

    Suggest removal

    dencolo writes:

    paulson seems to have driven a hard bargain with AIG; taxpayers should make money on that deal. paulson is not a politican or bureaucrat; he is former CEO of Goldman Sachs, one of 2 Wall St investment banks left.

  • September 22, 2008

    5:43 a.m.

    Suggest removal

    MilesUnltd writes:

    Republican capitalism...Privatize profit-socialize losses.

  • September 22, 2008

    2:29 p.m.

    Suggest removal

    COGrownFarmBoy writes:

    What I can't understand is how this election is even going to be close? The failed economic policy of the Bush Administration and the Republican Party is clearly evident and yet so many people seem to want to continue down this road to destruction. During the last eight years, the Bush Administration has allowed large Corporations and the Wealthy Upper-class to amass large amounts of profits and now when those businesses face some difficult times they want us to finance them. Why would anyone vote for a candidate who doesn't know how many houses he owns and who the Wall Street Journal (the friend of business) says doesn't understand our economy? While I disagree with some of the programs that Obama wants to put in place, it is time for a change. We need new ideas if we are going to face the problems that have been created by the Bush Administration.

  • September 22, 2008

    3:02 p.m.

    Suggest removal

    Couerl writes:

    http://www.bloomberg.com/apps/news?pi...

    It's going to cost us 6k each (every man, woman, child in the U.S.) to pay for the rescue of Freddie Kruger and Fannie Mae.. Like Social Insecurity, these institutions should never have come into existance. "New Deal"... Hah, this is what happens when good intentions by the Dems (Let's make sure every downtrodden Quickie-Mart worker has a 300k house, a 60k SUV and a 40k boat for nothing down) finally meets reality..

  • September 22, 2008

    5:30 p.m.

    Suggest removal

    dencolo writes:

    Just to be clear, the link provided by Couerl, above, is to an opinion column written for Bloomberg News by a McCain economic adviser (see postscripot at end of column).

  • September 22, 2008

    6:14 p.m.

    Suggest removal

    chris33 writes:

    McCain's Economic Adviser is ex-Texas Sen. Phil Gramm. On Dec. 15, 2000, hours before Congress was to leave for Christmas recess, Gramm had a 262-page amendment slipped into the appropriations bill. It forbade federal agencies to regulate the financial derivatives that greased the skids for passing along risky mortgage-backed securities to investors. And that, my friends, is why everything's falling apart. That is why the taxpayers are now on the hook for the follies of Fannie Mae, Freddie Mac, Bear Stearns and now the insurance giant AIG to the tune of $700 billion.