NYT’s Kristof says “back the bailout already!”

As much as I enjoy the New York Times’ Nicholas Kristof’s writings on social issues, especially those related to poverty outside the US, I really do wish he’d refrain from treading into politics or the economy.  His latest article expounds the threat of the US financial crisis bringing about a ‘Lost Decade’ similar to Japan’s (which sounds valid to me, albeit I know almost nothing about Japan’s Lost Decade).  We also agree that:

“Japan’s failure to respond urgently and decisively to its banking mess caused the country to endure a “lost decade” of economic stagnation. If America wants to avoid Japan’s decline, the House should follow the Senate’s lead and approve the bailout — immediately.”

Where we disagree is with his assertion that the Paulson-originated bailout proposal is in anyway decisive (“having the power or quality of deciding; putting an end to controversy; crucial or most important”).

With all the disparate opinions available to me on the web and in the newspapers I’ve read, and even directly from those involved in the writing and passing of the bailout proposal, I have received zero indication that this bill would be at all decisive.  Not even the most optimistic among Congress and the Senate seem capable of putting in detail how this bill could even potentially keep America’s economy from sinking into an ever deepening recession, or end the threat of systemic collapse (Kristof’s editorial page colleague, Paul Krugman, perhaps the preeminent economist employed at a major newspaper, stated plainly that even had the House’s bailout bill passed, we should expect to be presented with further economic crises in the near future).  I am personally reluctant to even say that the bailout bill’s passage would decisively kick the can down the road; I see the continuing possibility that the clumsy interventions by the federal government merely cause more seizures in interbank lending and credit, caused by further obscuring of bank finances (leading to distrust) and uncertainty from investors wary of the federal government’s next hare-brained move.  Although I cannot speak for institutional investors, the constant refrain among my Main Street investor associates is “this is too crazy; I’m going to sit it out”.

Normally, I wouldn’t feel compelled to comment on a Kristof economics article, but I see this attribution of ‘decisiveness’ given to this bailout bill, and I fear it is entirely misleading.  Literally no one feels this bill is at all decisive.  At best it artificially cauterizes a wound on a patient bleeding from six bullet holes.  And spend (or hold up) $700 billion in the process.  And when we do come up with a ‘decisive’ course of action, I am sure we would all rather be able to spend an extra $700 billion on that then $700 billion propping up the bad decision by banks who refused to exercise judgment or caution when faced with competitive pressures to engage in suspect dealings.

One last point: I do agree that had the beneficiaries of the bailout been more amiable, there would be less of a taxpayer and voter outcry against the bill.  As an inordinately rich industry that has been the beneficiary of the gentle treatment by corrupt politicians since banking’s conception, is it really appropriate to cry foul the one time they aren’t given all that they want?  But there is good reason why they are as hated as they are:  As deeply indebted taxpayers who are now facing rising unemployed and have been facing stagnant wages for years are asked to ’suck it up’ to save the financial sector, where are the bankers in volunteering a subsidy for their own industry?  If Paulson’s arguments are to be believed, they won’t even participate in their own bailout to ’save’ their companies and their industry if it means giving up their own hyper-lucrative compensation packages!

“The Treasury secretary, growing agitated at times, continually told members they needed to design a program that would work and that it made no sense to create a program if financial firms didn’t want to participate in it. “The situation is fragile,” he said repeatedly.”

“Democratic Sen. Max Baucus of Montana, chairman of the Senate Finance Committee, became frustrated that Mr. Paulson appeared to be arguing for softer language on the executive-pay rules, arguing loudly that executives at these companies shouldn’t be handsomely paid.”

This isn’t just an issue of hating the beneficiaries of the proposed bailout because they may have some strange fetish for mirrored floors (which, by the way, was an hilarious anecdote in Kristof’s article).  It is because the beneficiaries of a $10 trillion-dollar-in-debt taxpayer community’s benevolence are, in fact, odiously selfish.  And a reminder that it is not just taxpayers who are disgusted by the bill’s consideration for the whim’s of the millionaire and billionaire executives of the companies failing so hard that they may bring down the world’s economy:

“I am told that the reason the Treasury Secretary does not want limits on executive compensation is because he believes that an executive then will not bring his company in to partake in any program that is set up. Here is my response to that: We can put that executive on his boat, take that boat out in the ocean, and set it on fire.”

- Senator Dianne Feinstein (D-CA) (who voted FOR the Senate’s bailout bill)

… and the cow goes moo