Playing Politics with Economic Fire

What we've witnessed over the course of the last week is something of a perfect storm. With the financial sector teetering on the brink, and election year politics in full swing, reason, foresight, and an orderly distribution of life preservers, have been sacrificed for tantrums of the here and now. Who is to blame for the economic mess we are only starting to glimpse? Everyone. You, me, Wall Street, the Bush Administration, Congress, television pundits, the whole lot of us. A pox on all of our houses!

Americans have long been living on credit. Not just the poor, who often didn't qualify in the first place, but all Americans. As our economy shifted away from manufacturing to a service-centric model, we should have raised a red flag. When we all started playing the stock market back in the 1970's, by tying our retirement savings to Wall Street performance, we didn't blink. When we grew to expect double-digit growth on the value of our homes every single year, we convinced ourselves we'd settled into a new paradigm. In a way, our obsession with the housing and stock markets was itself a big smokescreen for the fact that Americans no longer make things.

Politicians on the left and the right were only too happy to feed the illusion that said, because the Titanic hasn't yet hit an iceberg, it will not hit one anytime soon. Well, we've hit it. And, surprise, there aren't enough lifeboats. To make matters far, far worse, this crisis comes in an election year. Every one of the members of the House of Representatives, and many in the Senate is up for re-election, so forget about them doing what's right for the country, it's political expediency time.

President Bush pulled another of his "with-us-or-against-us" cards from the deck and gave us a pretty rotten plan with zero oversight. Why? Because he says so. He's the decider, remember?

The presidential candidates are both in a no-win situation. Yes, Bush is a lame duck who can't lift his bill from the ground, but McCain and Obama are still trapped inside the shell. Neither man will come away as a "winner" in this. And God help him if he does, because this government is not going to be an easy one to manage for the next president.

What's truly frustrating is that none of our so-called leaders is doing a convincing job explaining this well to the American people -- who find it easier to rally behind Rush Limbaugh, Lou Dobbs, and Glenn Beck's combined outrage, than parse the implications of a spike in the interbank loan rate. NPR's "Marketplace Money" host Ky Risdall was a guest on CNN yesterday, and tried to shake the country out of its big-board trance.

"How many companies are traded on the DOW?" he asked. "Thirty."

Compare that to the millions of U.S. companies that face the prospect of not being able to grow because of new lending drought, and you can see that we're all guilty of being taken yet again. We're worrying over GE's fate when the future of every LLC in America is growing more precarious with each passing minute. Risdall spelled out the staggering, though little acknowledged, consequence of the delay in the bailout: Liquidity is about to screech to a halt. For business, this means hiring freezes, killing of new initiatives, and a halt to innovation. A credit desert also means a change in the American lifestyle as we have come to know it. No more car loans, college loans, home loans. Your credit limit is about to go down, and just in time for Christmas! Think your bank's ATM fees are obscene now? Just wait.

Of course, fiscal conservatives are standing and applauding. For them, the correction must lead us in the direction of pure, free-market capitalism, and they reject anything else as socialism. David Brooks had an important column yesterday, in which he dissected the motives behind those ideologues in his own party who have had fun playing spoiler:

And let us recognize above all the 228 who voted no -- the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.

Indeed, nothing like a 25% unemployment rate to shift public opinion.

Like talk radio and the cable rage networks, the blogosphere has also been lit up with populist/partisan anger. The libertarians and their friends on the right focus on personal and corporate responsibility, and the need for government to stay out the people's lives. The left disowns responsibility and blames decades of deregulation as the root of the problem. And while there is certainly intellectual merit to both positions, the fact remains that amid the squabbling, credit just dried up.

Maybe Congress, the president, and the country will get their act together tomorrow. Then again, maybe they won't. Anybody want to bet?