Bailout Scorecard: Ignorant Masses 1, Elites 0

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Dean Baker
TPMCafé (Talking Points Memo), October 12, 2008

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I know it's rude in DC policy circles to ever hold people accountable for the things they said way back when they were two weeks younger, but I like to break rules.

Remember all those folks who said that it was absolutely essential that the bailout bill be passed immediately or the economy would collapse? How can these people explain the fact that 10 days after he has had the full legal authority to act, Secretary Paulson has still done nothing with the $700 billion that Congress handed him. Doesn't Paulson realize the urgency?

Remember those who said that it was so urgent to pass a bailout package that even a badly designed bill had to be approved. Even if Secretary Paulson's proposal for buying bad assets through a reverse auction mechanism was a complex and inefficient way to re-capitalize the banks, it was still essential that he be given the money to go this route. What does it mean that even Secretary Paulson has now abandoned this approach? (Give Paulson credit for good judgment and being willing to change his mind, but what a waste it would have been if he had followed the initial course.)

Finally, remember the political leaders who assured the public that the restrictions on executive compensation included in the bailout would ensure that the taxes paid by school teachers and fire fighters were not subsidizing the income of the multi-millionaire bankers who had wrecked their banks and the economy? It turns out that these restrictions are not likely to affect executive compensation at all.

This is not just a question of trying to rub anyone's face in the ground for being wrong. This is how Washington politics is played. Imagine that the bailout had gone down a second time. Suppose that the financial markets and credit markets had panicked in the same way that they actually have panicked since the bailout's passage.

The newspapers would be filled with news stories, columns, and editorials condemning the ignorant hordes who just can't understand economics, and who forced their leaders in Congress to vote against the bill. However, when bad things happen after Congress follows the advice of the elite (who, by the way brought us to this crisis in the first place), no one is supposed to say anything.

Well, the real story here is that the elites brought us this mess. They were too dumb to see an $8 trillion housing bubble and to recognize the damage it would cause when it burst. They didn't know what they were doing then and they still don't know what they are doing now.

Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR). He is the author of The Conservative Nanny State: How the Wealthy Use the Government to Stay Rich and Get Richer. He also has a blog on the American Prospect, "Beat the Press," where he discusses the media's coverage of economic issues.