Dean Baker: Bush sought to provoke financial panic

This excellent essay by Dean Baker accuses Bush of deliberately creating financial panic to push through legislation. Naomi Klein calls this 'Shock Doctrine.' Whatever you call it, Congress fell for it once again. Then the rats all fled the sinking ship.

Perhaps the day will come when Americans are too poor to even pay taxes. There are so many of us... what if the economy goes belly up and the dollar collapses? I wonder what our dear representative government will do to collect on this enormous debt they have assigned to us against our will? Put us all in debter's prison? Assign us all jobs in a massive national work house?

This will likely go down as one of the greatest - if not the greatest - betrayal in our nation's history. I had the impression that my congressman grasped that fact (and thus refused to vote for it, along with most of the other Hoosier congressmen.)

Somehow our aging Senator Lugar - a nice man - missed the historical significance. Perhaps he was simply afraid. It is unfortunately that history will damn him along with the rest of the millionaire's club. Our children's children won't know anything about him other than that he signed this bill -- and it will stick to his name and reputation like the stink of a skunk.

Dean Baker's essay assigns the biggest blame to Bush. Is this the legacy Bush plans to leave -- bankrupting an entire nation? He says that he truly believes history will vindicate him. Is he actually hoping that there won't be anyone left to read it?

If Lincoln's ghost really does haunt the White House, I have a theory about why Bush spends so much time on vacation, away from the place. If I were Lincoln, I'd be howling "TRAITOR!" over W's bed, every single night.

Statement on Congressional Approval of Bailout

by: Dean Baker, The Center for Economic and Policy Research

Friday 03 October 2008

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 through Congress. While this has proven to be a successful political strategy, it marks yet another low point in American politics.

It was incredibly irresponsible for President 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 that, "we have nothing to fear, but fear itself."

It was even more irresponsible for him 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, Secretary Paulson and Federal Reserve Board Chairman Bernanke created sufficient panic, so that by the time of the vote, much of the public believed that the defeat of the bailout may actually have had serious consequences for the economy. Millions of people have changed their behavior because of this fear, with many pulling money out of bank and money market accounts, and in other ways adjusting their financial plans.

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 Secretary Paulson and Chairman Bernanke (and previously Alan Greenspan) to ignore the housing bubble, allowed for the growth of an $8 trillion bubble, which is now collapsing.

It is the collapse of this bubble, which has already destroyed more than $4 trillion in housing wealth, and is likely to destroy another $4 trillion 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 hundreds of millions in compensation from Goldman Sachs during his years there as its CEO.

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 World War II. 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.

Difficult or impossible.

Likely the next guy to take office will remember how well fear worked - and how unwilling congress was to stand up to it - and ram all sorts of horrors down our throats. McCain certainly will. Obama is still a mystery.

Obama voted for it; but perhaps naively believes he can undo it. I honestly have no idea. I wonder if he still wants to be president of this imploding empire?