Dean Baker: I think yesterday's vote was a tremendous victory for democracy. People forced their representatives in Congress to do what they wanted them to do. The "elite" media, unbelievably irresponsible as are the politicians. President Bush has been using these shrill scare tactics -- "the Great Depression"! I didn't know until I came in this morning that he took a look at the stock market drop and said, "It's going to get worse every day." What on earth is this guy talking about?
Frank Sesno: In fact, the stock market opened well up today. [The discussion took place at 10:15+ ET.]
Dean Baker: I'm not surprised. If I'd had more money, I'd have been betting on that! But the stock market is not the economy. The stock market heard everything in Washington. They heard these reporters convey -- uncritically -- President Bush's statement. ... Keep in mind: we had a housing bubble. President Bush insisted there was no bubble! Ben Bernanke insisted there was no bubble! Henry Paulson insisted there was no bubble! Now they're supposed to be great gurus of knowledge when they tell us the economy is collapsing? Oh, we can't question them? This is unbelievably irresponsible reporting on the media's part to take this stuff at face value...
Frank Sesno, member of the media, interrupts: ... Well, are the media taking at face value then too that the credit crunch is so bad that companies like General Motors and United Airlines -- never mind small businesses -- may not be able to get the money they need to float and buy and pay the vendors they need ...
Dean Baker: Apparently they are! If they'd noticed, General Motors can't sell cars because they've been making monsters, things that get 5 mpg when we have $4/gallon gas. The airlines have done the same thing. The problem is not the credit. That's only one minor problem ...
Frank Sesno, continuing to interrupt while Baker speaks: They have lots of problems in their marketing and their product line is certainly one of them. But the other is, as I understand it, that the credit crunch is so severe that all kinds of companies, healthy and unhealthy, including consumers who are maybe trying to buy a house at this point, are having a harder and harder time as these markets seize up.
Dean Baker: They're having a harder time. It's a factor. And so is the fact that the economy is going into a slump because we've lost over $4 trillion in housing equity. President Bush could get up there and say, with much validity, "If we don't pass a $250 billion stimulus tomorrow, it's going to get worse every day." That's true. That's a true statement. So yes, it would be good to get the banking system in order. But we didn't have to do this. I don't know a single economist who thought this was the best way to deal with the problem.
Of course, a stimulus package at one third the proposed cost of the bailout would, presumably, be available to taxpayers as much if not more than to the greedy mortgageers who brought the system down. That would make sense. In the meantime, Dean Baker is saying what we've all been sensing, those of us who oppose the White House/Treasury grand and urgent plans. Writing today at CEPR (and at TPM Cafe), Baker says:
"In the short-run, we will have to rely on government stimulus to help spur growth and reduce unemployment. The Democratic demands for stimulus were not extraneous to the legitimate goal of a bank bailout bill. Fiscal stimulus must be central to any serious effort to boost the economy.
"The weakness of the banks contributes to the downturn, but they are not the core of the problem. We would still be facing a recession even if all our banks were flush with cash. Hence the hype about the urgency of the bailout was an invention. It would be good to get our banks in order, but it also would be good to send $100 billion to state and local governments to support infrastructure projects and other spending."
How to help the banks?
"How do we go about getting the banks in order? Almost every economist I know rejects the Paulson approach and argues instead for directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank. (That's what Warren Buffet did with Goldman Sachs.)
"This isn't about begging for a sliver of equity as a concession for a $700 billion bailout, this is about constructing a bank rescue the way that business people would do it."
How to deal with the irresponsible media? Well, we could start with leather, whips, and chains ... Any other suggestions?