Friday, September 26, 2008

Democrats and the Bailout

Now that the Republicans have scuttled the proposed bailout plan, the Democrats have a couple of options. They could keep the basic plan they thought they had Republican agreement to, and hope that Bush and Paulson can convince the Republicans to go along with the deal. This may happen, if McCain scuttled the deal only to allow himself to seem more involved in the eventual solution. But McCain may not have much influence with the revolting Republicans (those from the House, primarily), so his support for any deal may not mean much. There may be significant political gains for the Republicans if they are the ones "blamed" for the collapse of the bailout. No one likes the bailout. Being able to run against it in the next election may be a big plus.

A better plan for the Democrats (and the country, I think) is to forget the untrustworthy Republicans, and come up with their own bailout plan--something smaller than the $700 billion Paulson figure (a number that Treasury came up with only because they wanted something really big), and more focused on assisting the people in danger of losing their homes. If I had my way, the plan would also include universal healthcare and a large infrastructure improvement program, something like Dennis Kucinich has proposed.

There are several alternative bailout plans out there that seem much more reasonable that Paulson's $700 billion proposal. The Center for American Progress thinktank has one that calls for mortgage-backed securities to be reunited into whole mortgages, bought by the Treasury and restructured. Economist James K. Galbraith has a much more modest plan, one that looks past the immediate crisis and toward the coming recession during the next 3-5 years.

Another option, of course, is for the Democrats to do nothing. They can say, "look, we had a plan agreed on, and the Republicans walked away. If they've got a better idea for solving this crisis, let them settle their differences among themselves, and then bring us the plan." This is not a terribly responsible option, however, as it risks financial meltdown for the sake of political benefit for the party. But the Republicans are doing just this, and are counting on the Democrats to be more adult then they are.

Why can the Republicans do this--and even benefit from it at the polls? Because for the last 30 or 40 years, they've been a political party uninterested in governing. They use goverment to make themselves and their friends rich, and to build their political power. But if the actual process and bureaucratic infrastructure of government itself falls apart under their leadership, they don't care. It's just more evidence that government doesn't work.

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