Surveying the political and financial landscape after yesterday's failure of the financial-system bailout, it's clear most Americans didn't trust or understand what they were being told by Washington, Wall Street and journalists. Steven Pearlstein of The Washington Post sees it much like we do: "In better times, the public might have put aside its reluctance in response to the strong and unified recommendation of political and business leaders. But it is a measure of how little trust remains in both Washington and Wall Street that voters are willing to risk a serious hit to their wealth and income rather than follow their lead."
In the same newspaper, Joel Achenbach and Ashley Surdin say much the same, and note that an approching election made a difference. "To a degree that few Americans could have appreciated just a few weeks ago, the economy runs on credit. But politics runs on a form of credit, too, generically known as trust, and trust has been a scarce commodity recently in Washington," they write. "The bailout lacked a sympathetic character at the heart of the narrative. And many Americans simply did not believe that the government had the basic competence to do the right thing." (Read more)
Pearlstein writes, "Americans fail to understand that they are facing the real prospect of a decade of little or no economic growth because of the bursting of a credit bubble that they helped create and that now threatens to bring down the global financial system." To avoid inflation, Pearlstein advises, governments around the world must borrow vast sums and "effectively nationalize large swaths of the financial system so it can be restructured, recapitalized, reformed and returned to private ownership once the crisis has passed and the economy has gotten back on its feet." (Read more)
As is often the case, conservative columnist David Brooks of The New York Times nails it, saying the "no" voters "did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them." He especially targets House Republicans: "They have once again confused talk radio with reality. . . . They will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the GOP as we know it."
The great need, Brooks writes, is for authority or at least a sense of it: "People don’t trust the banks; the bankers don’t trust each other. It was an effort to address the crisis of authority in Washington. At least it might have stabilized the situation so fundamental reforms of the world’s financial architecture could be undertaken later. But the 228 House members who voted no have exacerbated the global psychological free fall, and now we have a crisis of political authority on top of the crisis of financial authority." (Read more)
Reflecting some comments of those who voted against the plan, William Greider of The Nation, a liberal magazine, says it would give too much power to Treasury Secretary Henry Paulson and his successor. The vote "adds another deep shock to the system, both in politics and economics, but what an invigorating moment for democracy," Greider writes. "The financial bloodbath will continue, but unless the deal on the table changes significantly, Henry Paulson gets to decide who lives and who dies."
Greider says the main political failure "is that Congress did not step up and assert the full emergency powers of government in this epic crisis -- that is, take temporary control of the entire financial and banking system so regulators and policy makers can steer the U.S. economy to safer ground, compelling the private institutions to follow their lead. . . . By January, whoever wins the White House, it will be clear that Washington cannot cure the disease by relying on one smart guy from Wall Street. A new federal agency will be needed to supervise the bailout and restore defined public purposes and enforce them on the system." (Read more)
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