Charles Kaiser on the failed Wall Street bailout

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The proposed $700 billion bailout of Wall Street is the disgusting and inevitable outcome of a philosophy championed by Republicans and acquiesced to by Democrats: Greed is good, and deregulation is god.

Although the deregulation express train was launched by Jimmy Carter, the wholesale embrace of unlimited avarice is the undisputable legacy of Ronald Reagan, the man whose celebrated "sunny optimism" set in motion America's permanent denial about its actual economic condition.

As Andrew Bacevich writes in his brilliant new book, The Limits of Power, Reagan is "the modern prophet of profligacy" who gave "moral sanction to the empire of consumption"—the one that replaced the "empire of production," which was the pride of America until the end of the 1960s. Bacevich also said, "My view would be that the nation's assumption, that its line of credit is endless, is also going to be shown to be false. And when that day occurs it's going to be a black day, indeed."

So the anger of Republicans who defeated the plan—at least temporarily—is perfectly understandable, even as they remain blissfully unaware of their central role in creating this crisis. None of the smartest economists are surprised by current catastrophe. As Nobel Prize winner Joseph Stiglitz said on 60 Minutes yesterday, "not only was it foreseeable, it was foreseen."

Now the country is left with no choice except to try to bail out everyone most responsible for this calamity, because that is the only way we might be able to fix the financial system, at least temporarily. But there are two big problems with the plan that Congress is being asked to approve: Nobody really knows whether it will work, and the federal government is preserving the financial institutions that behaved so appallingly, instead of taking control of them.

Here is the analysis and prescription of the indispensable Bill Grieder:

"The scandal is not that government is acting. The scandal is that government is not acting forcefully enough—using its ultimate emergency powers to take full control of the financial system and impose order on banks, firms and markets. ... The step-by-step rescues that the Federal Reserve and Treasury have executed to date have failed utterly to reverse the flight of investors and banks worldwide from lending or buying in doubtful times. There is no obvious reason to assume this bailout proposal will change their minds, though it will certainly feel good to the financial houses that get to dump their bad paper on the government.

"A serious intervention in which Washington takes charge would, first, require a new central authority to supervise the financial institutions and compel them to support the government's actions to stabilize the system. Government can apply killer leverage to the financial players: accept our objectives and follow our instructions or you are left on your own—cut off from government lending spigots and ineligible for any direct assistance. If they decline to cooperate, the money guys are stuck with their own mess. If they resist the government's orders to keep lending to the real economy of producers and consumers, banks and brokers will be effectively isolated, therefore doomed.

"This crisis involves ethereal financial instruments of unknowable value—not just the notorious mortgage securities but various derivative contracts and other esoteric deals that may be virtually worthless.

"Call off their lobbyists, bar them from the bribery disguised as campaign contributions. Any contact or conversations between the assisted bankers and financial houses with government agencies or elected politicians must be promptly reported to the public, just as regulated industries are required to do when they call on government regulars."