At the time of the Wall Street bailout, I was one of millions of voters who wrote to Sen. Arlen Specter to warn him of the disastrous consequences to the global economy if the bailout bill were passed. It was the biggest public outcry in the history of the U.S. Congress, large enough to bring down both the House and Senate web servers for half a day at a time, something that had never happened before and has never happened since, and Specter, having a key position in the Senate, got more than his share of comments. He paid them no mind. This is the position paragraph from the e-mail message he sent me on October 3, 2008, a message I assume his office sent to everyone who contacted him on the subject and had an e-mail address:
I reluctantly supported this package because the failure of Congress to act would run the risk of dire consequences, including an economic downturn which could cause more foreclosures, jeopardize retirement accounts, and further restrict credit which is necessary for small businesses to operate. I am philosophically opposed to bailouts. I think that when you have Wall Street entrepreneurs who take big risks to make big profits and they go sour, they ought to sustain the loss themselves and not look to the government for a bailout which ends up in the laps of the taxpayers. However, I supported the plan to avoid economic disaster that would extend well beyond Wall Street.
I am convinced that more than 100 House members and a few Senators were duped into voting for the bill by leaders who persuaded them that it was something that it was not and that the situation was something that it was not. Specter was not a victim of the situation, however. He must have fully realized that the Wall Street bailout was simply a way to exploit a crisis in order to justify an government money giveaway on a shockingly large scale, a sort of going-away present from the Bush White House to its supporters on Wall Street. Specter must have realized that passing the Wall Street bailout would turn a situation that was a crisis for speculators and crooks into a crisis for the whole national economy — witness his language above in which he tries to position the Wall Street bailout legislation as an attempt to avoid the exact “dire consequences” that it was instrumental in bringing about.
This is easier to see now than it was at the time. As an economist, I could forecast the effects of the Wall Street bailout, not very accurately, to be sure, but in enough detail to know that it would not be the rose garden that people in Washington were promising. With the benefit of hindsight, everyone can see what happened in 2009. Wall Street bankers got richer while elsewhere, the economy staggered. There was the highest rate ever of home foreclosures and evictions. Lots of retirement accounts were wiped out, raising the novel tax question, “What do you do when your IRA account is in the hole?” The largest business lender and the largest business credit card issuer in the country both went bankrupt, and by fall, lending to small businesses and even to major national retail chains was so tight that stores could not even borrow money to put merchandise on their shelves for the Christmas season. Worst of all, the U.S. economy was closer to economic disaster at the end of 2009 than it was at the beginning. Other things happened too, but I thought I would just go through the list of things that Specter said the Wall Street bailout would prevent — things that it actually, to a significant extent, caused. Some of this hardship would have happened anyway, but much of it was put into motion by the Wall Street bailout. The bill led to a disastrous series of events, and the world will be paying the price for a long time to come.
None of this, of course, mattered to the people who ran the show in Washington at the time. What mattered was to profit from the atmosphere of crisis. And I don’t want to exaggerate Specter’s involvement in this. He objected strenuously to many of the details of the bailout bill, but he never spoke against the core idea of it, and in the end, he saw fit to rubber-stamp it. It was something he would explain to the voters later, yet when the time came to run for office again, he had very little to say about it. But then again, how do you explain away the biggest giveaway ever, especially after the world can see how disastrous the consequences have been?
And that brings us to where we are today. Specter lost his primary by an 8-point margin. And what is particularly telling is that he lost to a candidate who held nearly identical political positions. The way political strategists in Washington figure it, it is impossible to defeat an incumbent by merely copying his political stance, doubly impossible to do so for a relative unknown running in a primary election. But these are the same strategists who say that if you screw the voters more than a year before the election, they will forget by the time election day rolls around. It’s a strategy that didn’t work this time.
