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The End of Laissez-Faire — Again?

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The Bull Market

Bear Stearns. Lehman Brothers. Merrill Lynch. A.I.G. WaMu. Like Humpty Dumpty, or Lucifer, the largest companies on Wall Street are falling from grace. The king (Bush) and his men (Paulson and Bernanke) believe they can put the pieces of our economy together again, using the best glue money can buy. That’s money, of course. And a lot of it: $700 billion, give or take a few hundred billion.

Many are comparing the current financial crisis to the Great Depression. Let me take you back to the “Roaring Twenties” for a minute. It was amazingly kind of like the 1990s and early 2000s. The economy and stock market boomed. The rich got richer from the Coolidge tax cuts. Everybody benefited, unless you happened to be poor, especially a poor Southerner: the government ignored you during the Great Mississippi Flood of 1927, the worst natural disaster to hit the Gulf Coast until Hurricane Katrina in 2005. At the same time, inequality rose: by 1929, the richest 1 percent owned much of the nation’s wealth, while the bottom 93 percent saw their real income fall. Basically, life was almost as good as it was two weeks ago. On October 29, 1929, this all changed when the stock market tanked. The Republican president, Herbert Hoover, had no idea what was going on. He passed tariffs; he cut spending. He raised taxes. He even blamed the illegals — The Mexican Repatriation program kicked out some 500,000 Mexican immigrants. Although remaining true to Republican “laissez-faire” philosophy, none of this worked. Surprisingly, Hoover lost the next election to the Democrats in a landslide. There is a lesson here, and it doesn’t bode well for John McCain.

Like Hoover, Bush also has no idea what is going on. But, until Monday, I would have argued that the world had learned something since the Great Depression. I was further convinced of this last week, when President Bush put forth a grand and comprehensive three (!!!) page proposal to ease the woes of hemorrhaging hedge funds everywhere. That’s right — the Bush government was actually doing something!

Intervention in the markets is based on the idea that our nation’s financial institutions are “too big to fail.” In other words, if they go, they are taking us with them. Moreover, the lack of liquidity in the financial markets may cause credit to dry up. This would stymie the investment that we need to get our economy moving again. So think of the $700 billion as a lot of KY Jelly — it’s kind of slimy, but it makes it less painful, and keeps things gyrating smoothly.

So these difficult times have turned the Bush administration, of the party of small government and tax cuts, into the prodigal government of FDR. If you think about it, FDR and GWB have much in common. They both like deficit spending. They both sustained attacks on U.S. soil (9/11 was the first attack on U.S. soil since Pearl Harbor). They both are war-presidents, defending freedom against evildoers. Furthermore, they are arguably both handicapped — FDR was in a wheelchair and Bush … well, you know.

Over the weekend, it seemed that “GWB” would go down in history as the new “FDR.” But alas, lacking the support of Republicans, Bush’s tour de force of bailouts failed to pass in Congress on Monday. Why would Republicans vote against their leader, George W. Bush (and, of course, by association, “maverick” John McCain)?

First, bailing out Wall Street is not as antithetical to neo-Republican ideology as one would think. Certainly, this is the party that just stiffened our bankruptcy laws. The 2005 “Bankruptcy Abuse Prevention … Act,” made it much more difficult for Joe Six-Pack to eliminate debts by going Bear Stearns and filing for bankruptcy. The 2005 Act also addressed students. Well, not all of us — only the sons and daughters of Joe Six-Packs who have to take out student loans. The Act made sure you do not file for bankruptcy either.

But there is really no hypocrisy here. Unlike CEOs, you and your parents are not “too big to fail.” The Republicans are intervening today because the market is hurting rich people. If the government lets the free-market forces of unfettered capitalism do their worst, then rich people (who vote Republican) would lose a lot of money.

Second, Bush’s plan fit well with traditional Republican fascism, giving supreme dictatorial power on where to spend the $700 billion to Treasury Secretary Paulson (a.k.a. Lex Luthor). According to Bush’s plan, Paulson’s decisions “may not be reviewed by any court of law or any administrative agency.” Like the Patriot Act. Or Guantanamo Bay. Or the war in Iraq. Don’t worry, we would have been in good hands — Paulson, like the best Republican leaders, is the former CEO of a Fortune 500, so he knows about the problems of the average Republican lobbyist.

So why did the majority of Republicans vote against the big bail-out? The reason can be summed up by Republican Congressman Jeb Hensarling from Texas, who believes the bailout puts us on “the slippery slope to socialism.” Jeb is presumably referring to additions to the plan, such as no “golden parachutes” for CEOs, and plans for the government to take an equity stake in bailed-out firms. Jeb has enough vision to realize that we’re better off in another Great Depression than to risk socialism. To give you a better idea about Jeb, he has also voted against hate crimes legislation, and he is currently saving a “yea” vote for a constitutional amendment banning flag burning.

So really, of course, this is the Democrats fault. They took out all the core Republican values from GWB’s “New” three page Deal, adding 105 pages of “details.” The original three pages had no limits on pay packages for CEOs, and there was no plan for the government to take an equity stake in any of the firms being bailed out. Equity is just a fancy way of saying public ownership, a.k.a. nationalization. If this happens, what’s next? Our children will be taken from us and put in communes, we’ll add a hammer and sickle to Ol’ Glory, and Obama’s health care and tax plans will get passed — Jeb’s right, it’s a slippery slope.

So, in the end, it seems to be about principles. If we can’t have the plan our way, let the forces of unfettered free-market capitalism do their worst, the Republicans say. The markets will self-correct. Right? I guess we will have to find out when Congress reconvenes today. They have been on recess since Monday, so Jeb could go to run on his bank and take all his money out before you do.

Great Depression II, here we come.

Dmitri Koustas is a senior in the School of Industrial and Labor Relations. He can be contacted at dkoustas@cornellsun.com The Bull Market appears alternate Thursdays.

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