The main thing that worries me about the credit crisis is how we respond to it. Perhaps the proposed bailout is necessary, perhaps not. I suppose, in the absence of something like it, we may be looking at a major recession, which prospect substantially narrows the range of options that will be seriously considered in an election year. Like everybody else, I would prefer to avoid economic pain, if possible; however, I would rather see a recession, which would result in a sharp correction in the investment and job markets, but which would ultimately instill the discipline required for a healthy, long-term recovery, if the only alternative is a sea-change in our economic system that envisions a more or less permanent nationalization of private debt, and the preservation of the political class that has caused this ruinous state of affairs.
The great danger lies in the possibility that the American people will see the latest credit crisis as a failure of capitalism. It is undoubtedly a failure by certain capitalists, but it is, more importantly, overwhelmingly a failure by our political class to refrain from turning financial institutions into enormous slush funds. I have always been appalled by the fact that Senate and House Committee members have been able to receive political contributions from the very businesses that their committees regulate. But even worse than that is the legislative extortion that is applied by congressional majorities whenever the executive branch (in conjunction with a congressional minority) attempts to impose fiscal responsibility. When it became evident several years ago that Fannie Mae had been using bogus accounting to generate paper profits (in order to inflate the bonuses paid to its executives), which ultimately led to nearly a $10 billion “adjustment” to its books, President Bush (and John McCain) tried to tighten up the accounting principles and the regulation of this institution. Congress pretty much said, Ok, but in return for greater transparency in reporting, we’d like to broaden the definition of acceptable risk; so - voila! - we got the sub-prime mortgage nightmare. The necessary quid always seems to involve the self-defeating quo.
While I think Americans would be willing to accept some kind of emergency measures, they most definitely do not wish to preserve the rot that gave rise to the crisis in the first place. I believe the first presidential candidate to outline a workable emergency plan – even if it involves a bailout – and to link it with a program for dismantling the incestuous relationship between the regulated and the regulators will enjoy a distinct advantage in the coming election.
And in case politicians need reminding: the next revolution isn’t likely to be started by shrieking cyber-pamphleteers and professional grievance mongers whose dreams of class warfare are constantly being thwarted by the reality of their historical ignorance and pathological anti-Americanism; the next revolution will be set in motion by people who have played by the rules and who value their liberty and independence and who deeply resent the wholesale plundering of the nation’s wealth by the pompous ideologues, the clueless incompetents and the glad-handing thieves who constitute the no-longer sustainable core of our present governing class.