The news about the down-sliding economy is especially grim today. So I hope this post doesn’t strike anyone as me whipping out the harmonica as people hustle by to get to the lifeboats on the Titanic. That said, even before putting my socks on this morning I was thinking about Ronald Reagan’s notorious Cadillac-driving welfare queen from Chicago.
At best, Reagan’s tall-tale was inflated from a petty identity fraud case to an infamously embellished one-woman crime spree. His aim thirty years ago was to whip hard-working, taxpaying Americans into a lather about how the well-intentioned knitters of our social safety net had created a lavish wardrobe of abuse for people who didn’t want to work. It played on unspoken racial prejudice and fed the central premises of “Reaganomics,” which were to reduce government social spending, cut taxes, and decrease government regulation.
It was a deception within a deception. You’ll recall that Reagan’s budget director, David Stockman got taken “to the woodshed,” in 1981 when he admitted to William Greider that “Reaganomics” was a “trojan-horse” to cut taxes on the wealthy, and that the “supply-side” theory it was dressed in was just a fancy synonym for “trickle-down” economics.
Fast forward to today. When last we touched on this subject two months ago, the Congress had just tentatively agreed to give Treasury Secretary Henry Paulson the discretion to spend $700 billion to try to rescue the economy from the disastrous collapse of financial institutions caused by their reckless trading (and credit default swap side bets) in mortgage-based securities. After originally indicating he would use the extraordinary wad (with no interference from Congress) to buy the “toxic” securities and get them off the market, Paulson changed his mind and decided to start injecting the cash directly into the banks. This was necessary, we were told, to “unfreeze” the credit markets, so that businesses could get commercial paper (unsecured short term loans) and other loans.
Well, how’s that working? Not so good. Two headlines from today’s New York Times:
“Stocks Drop Sharply and Credit Markets Seize Up”;
“Looking to Washington Amid Turmoil, So Far in Vain”
Not only are financial sources telling the journalists that the downturn has begun to feed on itself (despite Paulson’s efforts) but there is renewed talk of 1929 scenarios.
If that didn’t flush faces from coast-to-coast, then National Public Radio’s lead financial piece by Jim Zarroli should have done the trick. In a preface piece to a remarkably candid interview with Sen. Chris Dodd, Zarroli reported that the banks on the receiving end of Paulson’s largesse had loosened up enough in inter-bank lending to drive down the LIBOR (London Interbank Offered Rate). But what they aren’t doing is lending the money to businesses in the real economy that the monstrous subsidy was supposed to revive.
The real kicker is Zarroli’s interview with Louisiana State University banking professor Joseph Mason who plainly described how the banks were keeping the money on the “sidelines” in order to continue to hide the depth of the trouble in their books related to the mortgage-backed security losses. Thus, Professor Mason said, the recipient banks are not only keeping the money to themselves but doing so because they don’t want to “come clean” about how deep a hole they’ve gotten themselves into.
Well, that’s pretty bleak, and while we thank Professor Mason for his candor we would be forgiven for praying that he’s wrong. Because it would mean that the bottom of this crisis is still well below our feet, and that it’s being hidden by the same unethical conduct that precipitated it in the first place.
It will bottom eventually, and there will be a recovery, not only in the financial markets but in the market of ideas and in politics. Inevitably, people will form strong opinions about who’s to blame for the 2008 collapse and then try to elect people who, they trust, will work to avoid getting us into something like this again.
When that day comes, people should remember how this all happened. The shift to deregulation and to accepting the quasi-religious argument that giving tax breaks and other advantages to the wealthiest is the real genius of the American economy was built with cartoons like Reagan’s mythical, Cadillac-driving welfare queen, gouging taxpayers for tens of thousands of dollars.
The harder truth for many Americans to accept is that the government has always intervened in various ways to pick winners and losers in our economy and that these conscious decisions cost far more than the rip-offs that make good newspaper copy. What, after all, are farm subsidies and arcane tax shelters and zero-consequence, multi-million dollar cost overruns on military hardware contracts? Yet, it’s only when we’ve tried to help the poor, or middle class with needs like health care, that charges of socialism and worse get shouted around. It’s probably too much to ask that a coherent and unified rebuilding of our economy be guided by an unflinching accounting, and then with humility and reason. But we should ask it anyway.
The worst case would be a return to making scapegoats of those who need government the most. As Reagan understood, Americans are suckers for simple truths, even if those truths are truly false.
–Tim Connor
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