No exit from bailout politics
David Frum
It’s amazing how candid we get after the election is over!
Since 2004, Democrats have been telling us that Iraq was the bad war they did not want to fight—but Afghanistan was the good war they did.
It seemed hard to believe at the time. Everything that made Iraq tough—weak civil society, hostile terrain, fanaticism—makes Afghanistan tougher. Psychologically too, the Democrats’ self-presentation as eager Taliban fighters seemed suspect. Only 57 percent of Democrats say they would favor the use of force even to destroy a proven terrorist camp. The Party of Battles they are not.
Now Shrum ruefully acknowledges that this self-presentation was at best “reflexive” and perhaps even “misleading!”
What message is appropriate now for those Americans who trusted Shrum’s party to take national security seriously? Maybe Otter’s words from the movie Animal House: “You f----ed up. You trusted us.”
Yet as ominous as the situation in Afghanistan looks, there is another candidate for the role of “Obama’s Iraq”: the bailout.
The federal government is taking ownership stakes in big banks and financial companies. Those stakes are likely soon to be joined by partial ownership of the automobile companies—and who knows what else?
As with Vietnam, entry into this new commitment is easy, but exit will be hard.
• At first, exit will be postponed until the situation seems more stable.
• Then exit will be postponed until the government can get a better price for its shares.
• Then exit will be postponed because the government’s ownership role promotes supposedly important social objectives, such as greener cars or more minority lending.
• Then exit will be postponed because of the accretion of communities of interest around the government role. (See, Tennessee Valley Authority, continued existence of.)
These ongoing government commitments will exact ever steeper costs. The financial costs will be the least of our concerns. (Although the cost to the taxpayer of financing the borrowed capital invested in these firms will not be small.)
Even bigger will be the distortions and dislocations that the outsize federal role introduces into the general economy. When government invests in industry, industry invests in government. (See Fannie Mae and Freddie Mac, political donations by.)
As government becomes more involved in a firm, the firm acts less and less competitively and more and more like a job-protection organization. (See, British nationalized industries, decline of.) A symbiotic relationship develops in which the very concept of a public interest is lost.
Will the Democratic Congress authorize the new “car czar” to revisit labor contracts? What happens when cost-cutting executives at our huge new merged banks want to shift more back office operations to India?
Leslie Gelb wrote a famous book about the irony of Vietnam, arguing that “the system worked”—meaning that the tragedy was produced by a series of rational calculations by presidents doing just what was needed to postpone failure a little longer. In that sense, the system is working again today. The United States is moving to a new form of social and economic organization, the general outline of which is only just now coming into focus. Today’s emergency decision-making will create tomorrow’s institutions. We may not like them much. They will be costly and dangerous. But withdrawal will demand an intense act of political will—and the courage to defy some of the most powerful constituencies in Washington, including the Democratic Party.
Show: Oldest | Newest
7 Comments
Posted by Kam, Thursday, December 11, 2008, 12:07 am Frum danced all around the word, but I will just lay it out.......Nationalization! Yes, Nationalization and its close relative Socialism is the future!
Posted by ottovbvs, Thursday, December 11, 2008, 3:50 pm Actually as of now it's Bush's bailout. There may have been some bumps in the road but it was all necessary whether anyone likes to admit or not, just as rescuing the car business is necessary. Watching events unfold I'm starting to wonder whether the GOP ever wants to win IL, MI, OH and IN ever again. I suspect the adults like Paulson and Bernanke will just step in if the Republicans in the senate block this because unlike the financial and automotive experts like Shelby, Bunning, Corker and co they have some inkling of the cataclysm this could cause. As for the children, and based on much of the comment in this article Frum qualifies for the title I'm sorry to say, and all the usual comments we'll see ranting on about socialism etc etc you're just going to have to get used to it because it's going to take years to sort out the biggest mess since the depression which also happened on the watch of a Republican president.
Posted by woodman, Thursday, December 11, 2008, 5:50 pm "Actually as of now it's Bush's bailout. " we'll see - the left wants bush to do their dirty work (wet kiss to the UAW) and defy popular wisdom. Congress and the Office of Thrift Supervision have sole oversight of FNMA and it was congress who pushed for more lax mortgage requirements under your hero clinton back in 1994. Well, the bills came due for the loans with under-priced risk. You play, you pay. In response to testimony by Alan Greenspan before the senate banking committee in 2003, he expressed concerns as to the amount of leverage used by fnma and freddie man and the systematic risk posed by such leverage and subsidized loans. Barney Frank's reply? "Rep. Frank: I do think I do not want the same kind of focus on safety and soundness that we have in OCC [Office of the Comptroller of the Currency] and OTS [Office of Thrift Supervision]. I want to roll the dice a little bit more in this situation towards subsidized housing. " then, "Rep. Frank: I believe there has been more alarm raised about potential unsafety and unsoundness than, in fact, exists." I suppose when your former live-in lover of nine years is the vice president of new product development at fnma, your judgement gets cloudy. You dems are great at back-seat driving and complaining. Now you are driving the bus - and we get to complain. Life's a b%&#% and then you die
Posted by Abby, Thursday, December 11, 2008, 5:50 pm since when did Shrum become the voice for the party? He is one of many...
Posted by valwayne, Thursday, December 11, 2008, 6:20 pm So far it doesn't look like Obama is putting together a surrender to terrorism cabinet so he deserves the benefit of the doubt there. He's gung ho with the auto industry bail out which is just throwing good money after bad, but he does owe the unions...but $30 billion? I'd say stop the bail out and given the top 100 union leaders 100 million each to pay them off. That way he pays his election debt to them with $3 billion, not $30. And he should just send it to their swiss bank accounts so they can avoid his new higher taxes. After all corruption is the Chicago way....and that's what people knowingly elected as Gov Blagojevich has now made glaringly obvious. the next 4 years will be fun!!!!!
Posted by tim stevens, Thursday, December 11, 2008, 9:24 pm I can't think of ANYTHING the federal government has successfully completed without massive unforeseen costs or negative consequences. War on terror? Cavity searches for a pair of nail clippers. War on drugs? 2M drug-related prisoners, corrupt police and boarder guards. Auto bailout? $38B and counting. Financial bailout? $700B and counting. Social Security? Projected bankrupt in 2022 or earlier. Universal (health) coverage the mere suggestion sends stock markets tanking. Honesty and ethics in government? Dodd, Frank, Schumer, Clinton, Pelosi et al Balanced budget? Talk of confiscating 401-Ks and enacting a VAT. Fair and accurate assessment of bond (and other instruments) ratings? Ha AAA rating for mortages worse than crap. "Affordable Housing"? Oh, yes, the community reinvestment act with its minority quotas and the outlawing of "redlining." Oh, yes, if government can screw it up, it does so with gusto and hands us (those asked to pay a "little bit more") the bill.
Posted by evan , Monday, December 15, 2008, 8:58 am poopy
Post a Comment