Tuesday, September 30, 2008

Ezra Klein: The Meaning of the Financial Crisis

In an outstanding series of posts today, Ezra Klein clarifies the meaning of the current financial crisis.

On Wall Street and Main Street: I'm a bit unnerved by the populist glee some folks are taking in the bailout bill's failure. Some people think they've put one over on the experts, who are always talking down to them. Others think they've finally stuck it to those fat cats on Wall Street. Still a few more are glad to have saddled Bush and the Republicans with one last reminder of the utter bankruptcy of their ideology.

This seems like a very weird understanding of power in this country. If this bill fails, and the worst does come to pass, the experts will be fine...So too will the fat cats ride out the crisis. Wall Street's top players have plenty of options. They will apply for jobs at commercial banks and new firms. They will go to law school, or parlay their Ivy League degree into a more spiritually fulfilling and emotionally enriching career. And Bush and his friends will certainly live out their lives in comfort. Bush will stumble his way through speeches, and lose the card to his own presidential library. Defeated Republicans will gladly take jobs as lobbyists.

But other things will happen. Money market funds could be wiped out. Plenty of pensioners could lose the investment income they use to survive. Then there are the bigger problems: The credit markets could seize up. Without access to credit, economic demand will plummet. Unemployment will hit double digits, wages will fall sharply, small business will shutter their doors. The people hurt in that scenario are not rich and they are not powerful and they will not be okay. They will lose their jobs and their savings and their health care.

Klein points out that there is an argument to be made that these things will not happen if the government does not intervene in a big way. Are you willing to take that chance? I'm not.

State of the Credit Markets: As an unsettling follow-up to the previous post, the credit markets are, as the Wall Street Journal puts it, blinking red. And it's worth being clear on what this means. Wall Street is Wall Street. It remains primarily a playground for the wealthy. But in this economy, credit is everything. They are consumer demand and foreclosures and employment numbers and business hires and everything else. And what you really, really don't want is for credit market to go down when you're in a recession. Credit is how families and businesses alike ride out bad times. Deprive them of that cushion, and an ordinary recession becomes something far worse.

--Ballard Burgher

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