Kicking the Can Down the Road

The US House of Representatives Just passed what is best know as 'The $700 Billion Bailout Bill', now "larded up" sunstantially. Yves Smith, in an hour-long videoblog interview with Megan McArdle (Oct 1), argues that all that they have done is to kick the can done the road — problems will return again as early as November/December. Watch the hour-long interchange to gain a better pespective as to how we got into this mess over the last 40 years, what it means now and going forward.

Paul Krugman seems to agree that all this Bill will do, at best, is to buy time saying in The Edge of the Abyss (NY Times Oct 2)

… [A]t best, the plan will buy some time to seek a real solution to the crisis.

And that raises the question: Do we have that time?

A solution to our economic woes will have to start with a much better-conceived rescue of the financial system — one that will almost surely involve the U.S. government taking partial, temporary ownership of that system, the way Sweden’s government did in the early 1990s. Yet it’s hard to imagine the Bush administration taking that step.

We also desperately need an economic stimulus plan to push back against the slump in spending and employment. And this time it had better be a serious plan that doesn’t rely on the magic of tax cuts, but instead spends money where it’s needed. (Aid to cash-strapped state and local governments, which are slashing spending at precisely the worst moment, is also a priority.) Yet it’s hard to imagine the Bush administration, in its final months, overseeing the creation of a new Works Progress Administration.

So we probably have to wait for the next administration, which should be much more inclined to do the right thing — although even that’s by no means a sure thing, given the uncertainty of the election outcome. (I’m not a fan of Mr. Paulson’s, but I’d rather have him at the Treasury than, say, Phil "nation of whiners" Gramm.)

Nobody I read likes the "Plan" much, but many seem to think it will buy time. Some like Dean Baker don't think it was needed at all. See Baker's Sept. 29 Wall Street Held a Gun to our Heads. We'll never know whether those who wanted us to let-it-ride were correct. But we can wait and see whether this does little long-term to solve the big problems of tightly-coupled, structured-finance markets that were badly designed to cope with the mechanisms by which Wall Street insiders, big Hedge Fund managers, and others stole so much from too many of us.