Where are the Adults?

Our crazy Congress has put its collective feet in it, and the rest of us we are left to pray we don't find out too much about what this might mean. Here's some food for thought, from the Daily Telegraph online (London):

In one fell swoop, the House of Representatives has applied a sledgehammer to the American economy. The staggering plunge in the value of publicly quoted stocks in the US last night - a $1.2 trillion fall - shows more clearly than anything else just how much it had been holding out for a financial bail-out.

Even so, the longer you stare at a screen of the Dow Jones or FTSE 100, the more abstract it seems. So this is what it means:

It means millions more Americans, and hundreds of thousands more Britons, will lose their jobs; it means the recession will be deeper and more protracted than previously feared; it means borrowing costs will increase on both sides of the Atlantic. Companies will cut back on investment. Pension funds will be depleted.

The Western world, in short, will become significantly less wealthy.

It is well-established that nobody likes this bill. It looks as if Americans have designed and built themselves an unsustainable system that allows capitalism for profits, and socialism for losses. There will be time enough later to figure out how we got here. That said, what do we do today?

Much of our problem has to do with timing. Our political system is almost incapable of digesting something this immense, this complicated -- only five weeks from a Presidential election. Far better to have had this crisis three months previously, or three months hence. The House of Representatives is getting ready to face voters, and the solons don't want to come before us just after having bailed out a bunch of bankers. In fact, whoever got the media to call this bill a "bailout" and not a "rescue" or something else pretty much decided the political battle right there.

The polls show that the public hates this bill. People have their reasons, but the failure to approve the $700 billion package before the House yesterday resulted in a stock-market decline -- just yesterday -- that wiped out $1.2 trillion in value (the size of the whole Indian economy). That drop's going to sink lots more than Wall Street.

Depend on it, no matter how angry many of us might be, the investment bankers and speculators are going to survive. If the American economy won't float, the world party will move on -- just as it did from London to New York in the early 20th Century. Where next? Maybe Hong Kong. If Wall Street becomes a financial backwater, it will be Main Street that does the paying in terms of tighter credit, fewer jobs and opportunities, and harder times.

We can talk about free markets and principles, moral hazard and enabling till the cows come home, but those opposed to Tresury Secretary Paulson's plan -- which a whole lot of very smart people are telling us we need -- need to have an alternative in mind. More fundamentally, we all need to be sure whether we are really up for the high road of letting Wall Street eat it. There are going to be consequences, mostly to us.

Some of the most interesting consequences are going to be political. In all probability, the past two and a half weeks have ensured the election of Barack Obama, the most liberal, left wing person ever nominated by a major party ever. America is apt to "come home," in a way that would have pleased supporters of George McGovern in 1972. The geopolitical and financial world our children will inherit will be less in America's favor; much more regulated and redistributionist, and probably poorer. Bet, in other words, on things to get worse.