It’s an election year, and Republicans and Democrats are trying to run away from Wall Street and portray themselves as anti-bailout — even though the 2008 bank bailout was the product of both parties. Democrats are trying to claim that their financial regulation bill outlaws bailouts, while Republicans are countering that it actually represents a permanent bailout. In a Senate floor speech, Mitch McConnell urged fellow lawmakers to do “everything we can to make sure the final product doesn’t allow for future Wall Street bailouts.”
But the reality is that there’s nothing the current Congress could do to prevent future lawmakers from initiating another bailout if some sort of financial crisis occurs at some point down the road, and no legislation is likely to prevent such a crisis. Should a crisis occur, the same “emergency” mindset that prevailed among the elites is likely to win over again.
I rember going to a Q&A President Bush did a month before leaving office, and he had this to say about his decision on the bailout:
This is a difficult time for a free market person. Under ordinary circumstances, failed entities — failing entities should be allowed to fail.
I have concluded these are not ordinary circumstances, for a lot of reasons. Our financial system is interwoven domestically, internationally. And we got to the point where if a major institution were to fail, there is great likelihood that there would be a ripple effect throughout the world, and the average person would be really hurt.
And what makes this issue difficult to explain is — to the average guy is, why should I be using my money because of excesses on Wall Street? And I understand that frustration. I completely understand why people are nervous about it. I was in the Roosevelt Room and Chairman Bernanke and Secretary Paulson, after a month of every weekend where they’re calling, saying, we got to do this for AIG, or this for Fannie and Freddie, came in and said, the financial markets are completely frozen and if we don’t do something about it, it is conceivable we will see a depression greater than the Great Depression.
So I analyzed that and decided I didn’t want to be the President during a depression greater than the Great Depression, or the beginning of a depression greater than the Great Depression. So we moved, and moved hard.
Ultimately, Congress got in line too, and they came up with their own rationalizations. Rep. Paul Ryan, for instance, told me that he was worried if there weren’t a bailout and we plunged into a deep economic depression, that it would have made it a lot easier for Democrats to ram through their agenda as Franklin D. Roosevelt did.
So, no matter what Congress passes into law right now, we already know that when push comes to shove, politicians will vote for a bailout because nobody wants to be seen as responsibile for an economic collapse. And then the crisis will be used as another argument for why we need more government intervention.