Tuesday, September 23, 2008

The Worst Disaster Ever to Hit the U.S. Economy

If you have to choose between keeping your current bank and heating your home this winter, which would you choose?

This question is not an intellectual exercise, but an actual choice facing Congress this week. The U.S. dollar plunged by the largest amount in years yesterday and the price of oil shot up by a record amount just on the possibility that the Wall Street bailout bill might pass.

If it does pass, the value of the U.S. dollar will fall within a few weeks to about 48 euro cents, and the price of oil by December will surpass the records set in June. Then, millions of people will not be able to heat their homes.

I thought something might be fishy when the White House said they had made a legislative proposal Thursday night, but no one seemed to know what was being proposed until Monday morning. And since people started to find out what the Wall Street bailout proposal implied, the flood of mail in my inbox has been more unanimous than on any issue I have ever written about. If what I am hearing is any indication, this most massive giveaway program in history could be the subject of a popular revolt.

  • “We could have people freezing to death this winter because they can’t afford heat, while the government is on the verge of bankruptcy and can’t help them out.”
  • “I was torn about it for a while, but then I thought: Am I going to take the largest amount of money ever assembled in history . . . and give it to George Bush to hand out to failed bankers?”
  • “If the program helps out people who borrowed more than they could afford, but it doesn’t do anything to help me get a house, when I’ve been responsible about it and they haven’t, that isn’t fair.”
  • “I feel strongly that people who make bad investments should have to bear the consequences, take their losses, and not have the government step in to bail them out.”
  • “I’ll never be able to go to Europe again. The dollar won’t be worth sh—.”
  • “It’s just one last money grab by the Bush people. They see every problem as a profit opportunity for themselves.”
  • “Suppose the entire banking system fails. They’ll just be getting what they deserve. If we have to set up an emergency banking system, it won’t cost anywhere near $700 b[illion].”
  • “It has the look of a bank robbery, only it’s the bankers who are doing the robbing and the bank they’re robbing is the U.S. Treasury.”
  • “There isn’t anything [in the bailout plan] to save a bank like WaMu or Wachovia. It might not save even one bank. And it doesn’t do anything to get the economy going again.”

I received these comments, and dozens more like them, from people who are all over the political map. All are high school graduates, I believe, but they have little else in common.

It didn’t help people feel better about the bailout when we learned this afternoon that bankers at the bankrupt brokerage Lehman Brothers will shortly be getting $2.5 billion in bonuses. The economy has shed a million jobs this year because of mistakes made in part by the people at Lehman Brothers, and they drove their own company into the ground, and they’re getting bonuses? Billions in bonuses? It is not the kind of news that plays well in the part of the country that Wall Street people like to call Main Street.

Treasury Secretary Henry Paulson has also been undermining the legislation’s chances by being startling vague about some of its provisions and implications. It does not help that some of the provisions in the bill he apparently drafted appear to be unconstitutional. But these details of implementing the plan are not so important to the people I am talking to. They object, quite simply, to the amount of money, and to where it is intended to go.

And from what I understand about the proposal now, I can say flatly that it would be the worst thing ever to happen to the U.S. economy. It will not rescue the banks. It will not even help them collapse more gracefully. Many of the storied banks of the United States will still go down, one after another. And the bill will do nothing to get the economy going. Paulson optimistically predicts that it will help banks start lending again, but I do not believe anyone, least of all the bankers, wants to see banks go back to lending the way they were two years ago. The business model of American banking is broken, no one really has a solution to that right now, and adding more money to the equation does not change that.

And these failings pale in comparison to what the “rescue” plan would do to the U.S. currency. If the bailout passes, the U.S. dollar will decline rapidly — reaching the neighborhood of 48 euro cents in a few weeks, then probably continuing to decline for years to come. With the falling dollar, oil prices will go up, and not just a little! Oil will pass $150 by December and hit new records all the way through June. The reason this will happen is because of the enormous deficit spending required for the Wall Street bailout. No government in history has ever borrowed and spent so much money in such a short time, but when you look at the closest parallels in the history books, when countries have done anything similar, their currencies have collapsed.

As a rule, deficit spending causes currency declines, and the largest deficit spending binge in history, even in the richest country in history, can only add to the declines the U.S. dollar has already seen in the last five years.

And so, in the end, it really isn’t a choice between keeping the banks we have and heating our homes this winter. With the Wall Street bailout plan, we get the worst of both worlds. The banks fail anyway, and the price of home heating oil (along with all other forms of oil, including gasoline) skyrockets. I know for a fact that members of Congress are hearing from constituents on this, so the bill will probably be dead by tomorrow, but if you’re concerned about the future of the United States, it doesn’t hurt to add your voice to the discussion. The best way to do this is to telephone or email your state’s two senators and your representative in Washington directly. You can simply ask them to vote no on the Wall Street bailout.

Another option is the web site below (for those who don’t mind that its petition is sponsored by ImpeachBush.org). Along with your other comments, you might mention that it doesn’t make any sense to sacrifice the U.S. dollar when there is no real plan to save the banking industry. If you like, you might add that this bill would be the worst disaster ever to hit the U.S. economy. Because that’s what it would be.