A Crisis
Made in the
Oval Office
A financial
panic
provoked by
President
Bush was
designed to
stampede
Congress
into passing
the bail-out
for Wall
Street
By Dean
Baker
07/10/08 "The
Guardian"
- -- This
is the first
time in the
history of
the United
States that
the
president
has sought
to provoke a
financial
panic to get
legislation
passed
through
Congress.
While this
has proven
to be a
successful
political
strategy -
after the
House of
Representatives
finally
passed the
bank
bail-out
plan today -
it marks yet
another low
point in
American
politics.
It was
incredibly
irresponsible
for George
Bush to tell
the American
people on
national
television
that the
country
could be
facing
another
Great
Depression.
By contrast,
when we
actually
were in the
Great
Depression,
President
Roosevelt
said: "We
have nothing
to fear, but
fear
itself."
It was even
more
irresponsible
for
President
Bush to
seize on the
decline in
the stock
market five
days later
as evidence
that his
bailout was
needed for
the economy.
President
Bush must
surely
understand,
as all
economists
know, that
the daily
swings in
the stock
market are
driven by
mass
psychology
and have
almost
nothing to
do with the
underlying
strength in
the economy.
The scare
tactics of
President
Bush, Henry
Paulson, the
Treasury
secretary,
and Ben
Bernanke,
chairman of
the Federal
Reserve,
created
sufficient
panic, so
that by the
time of the
first vote
on the
emergency
package in
Congress,
much of the
public
believed
that the
defeat of
the bail-out
may actually
have had
serious
consequences
for the
economy.
Millions of
people have
changed
their
behaviour
because of
this fear,
with many
pulling
money out of
bank and
money market
accounts,
and
adjusting
their
financial
plans in
other ways.
This effort
to promote
panic is
especially
striking
since the
country's
dire
economic
situation is
almost
entirely the
result of
the Bush
administration's
policy
failures.
First and
foremost,
the decision
of Paulson
and Bernanke
(and
previously
Alan
Greenspan)
to ignore
the housing
bubble,
allowed for
the growth
of an $8tn
bubble,
which is now
collapsing.
It is the
collapse of
this bubble
- which has
already
destroyed
more than
$4tn in
housing
wealth, and
is likely to
destroy
another $4tn
over the
next year -
that is at
the root of
the
economy's
problems.
While
competent
economists
were warning
of the
bubble and
the dire
consequences
of its
collapse,
the top
officials in
the Bush
administration
were
celebrating
the rise in
homeownership
rates.
The Bush
administration
made the
crisis even
worse by
deregulating
Wall Street.
This led to
the huge
over-leveraging
of financial
institutions,
which has
vastly
complicated
the
country's
economic
policies. It
is
especially
disturbing
that
Secretary
Paulson
personally
profited
from these
policies,
earning
millions of
dollars in
compensation
from Goldman
Sachs during
his years
there as its
chief
executive.
The collapse
of the
housing
bubble,
while
falling
short of the
magnitude of
the Great
Depression,
is likely to
lead to the
worst
recession
since the
second world
war.
Repairing
the damage
caused by
this bubble
will be a
long and
difficult
process.
Cleaning up
the damage
to the
political
system from
President
Bush's
unprecedented
fear
campaign may
prove to be
even more
difficult.
07/10/08 ©
Guardian
News and
Media
Limited 2008
|
