One of the best pieces of reporting to emerge from the bailout insanity is this gem from Joe Nocera of the New York Times. You must read it: doctor’s orders. It makes it crystal clear that Paulson has a plan for his friends in the financial world, but there is no plan for the economy. You can lead a bank to liquidity but you can’t make it loan. For his chutzpah in listening in on a conference call intended only for JP Morgan staff, Nocera deserves a Pulitzer, a Nobel or something.
My first thought on reading this exposé was that we just need to hang on for three more months, when the real cavalry will come to push aside this bunch of imposters. But then I realized that there is no guarantee that Rubin, Summers et al. will have the courage or freshness of vision to do what needs to be done. They too have been shouting “Capitalization, Capitalization”, which may rescue them but falls far short of rescuing us.
I reiterate: we need to put a public financial alternative on the table. Bailing out the financial institutions (a) may not succeed on its own terms and (b) does not deal with the fact that the real economy is plunging. A public entity can step up and provide the credit we need to avoid a suffocating slump, so we are not held hostage to the Jamie Dimons of this world.
And where is the left? They rail against the bailout and the evils of finance capital, but when it comes time for them to put forward a constructive, functional alternative they change the subject. As far as I can see, it comes down to this: either we bail out the existing institutions and somehow browbeat them into countercyclical lending behavior, which they will resist with all their fiber, or we let them go to their fate and put our marbles into a public institution that can do the job. The first is an ethical swamp, reeking of moral hazard, and may well fail. The second is the straightest, fairest, most reliable route to recovery. Please raise your voice for a public alternative. If the bailout fails to prevent a full-bore economic collapse, by the time we find out it will be too late.