The Fire Next Time (Krugman Column)

[dtotire]

By PAUL KRUGMAN
Published: April 15, 2010

On Tuesday, Mitch McConnell, the Senate minority leader, called for the abolition of municipal fire departments.


Firefighters, he declared, “won’t solve the problems that led to recent fires. They will make them worse.” The existence of fire departments, he went on, “not only allows for taxpayer-funded bailouts of burning buildings; it institutionalizes them.” He concluded, “The way to solve this problem is to let the people who make the mistakes that lead to fires pay for them. We won’t solve this problem until the biggest buildings are allowed to burn.”

O.K., I fibbed a bit. Mr. McConnell said almost everything I attributed to him, but he was talking about financial reform, not fire reform. In particular, he was objecting not to the existence of fire departments, but to legislation that would give the government the power to seize and restructure failing financial institutions.

But it amounts to the same thing.

Now, Mr. McConnell surely isn’t sincere; while pretending to oppose bank bailouts, he’s actually doing the bankers’ bidding. But before I get to that, let’s talk about why he’s wrong on substance.

In his speech, Mr. McConnell seemed to be saying that in the future, the U.S. government should just let banks fail. We “must put an end to taxpayer funded bailouts for Wall Street banks.” What’s wrong with that?

The answer is that letting banks fail — as opposed to seizing and restructuring them — is a bad idea for the same reason that it’s a bad idea to stand aside while an urban office building burns. In both cases, the damage has a tendency to spread. In 1930, U.S. officials stood aside as banks failed; the result was the Great Depression. In 2008, they stood aside as Lehman Brothers imploded; within days, credit markets had frozen and we were staring into the economic abyss.

So it’s crucial to avoid disorderly bank collapses, just as it’s crucial to avoid out-of-control urban fires.

Since the 1930s, we’ve had a standard procedure for dealing with failing banks: the Federal Deposit Insurance Corporation has the right to seize a bank that’s on the brink, protecting its depositors while cleaning out the stockholders. In the crisis of 2008, however, it became clear that this procedure wasn’t up to dealing with complex modern financial institutions like Lehman or Citigroup.

So proposed reform legislation gives regulators “resolution authority,” which basically means giving them the ability to deal with the likes of Lehman in much the same way that the F.D.I.C. deals with conventional banks. Who could object to that?

Well, Mr. McConnell is trying. His talking points come straight out of a memo Frank Luntz, the Republican political consultant, circulated in January on how to oppose financial reform. “Frankly,” wrote Mr. Luntz, “the single best way to kill any legislation is to link it to the Big Bank Bailout.” And Mr. McConnell is following those stage directions.

It’s a truly shameless performance: Mr. McConnell is pretending to stand up for taxpayers against Wall Street while in fact doing just the opposite. In recent weeks, he and other Republican leaders have held meetings with Wall Street executives and lobbyists, in which the G.O.P. and the financial industry have sought to coordinate their political strategy.

And let me assure you, Wall Street isn’t lobbying to prevent future bank bailouts. If anything, it’s trying to ensure that there will be more bailouts. By depriving regulators of the tools they need to seize failing financial firms, financial lobbyists increase the chances that when the next crisis strikes, taxpayers will end up paying a ransom to stockholders and executives as the price of avoiding collapse.

Even more important, however, the financial industry wants to avoid serious regulation; it wants to be left free to engage in the same behavior that created this crisis. It’s worth remembering that between the 1930s and the 1980s, there weren’t any really big financial bailouts, because strong regulation kept most banks out of trouble. It was only with Reagan-era deregulation that big bank disasters re-emerged. In fact, relative to the size of the economy, the taxpayer costs of the savings and loan disaster, which unfolded in the Reagan years, were much higher than anything likely to happen under President Obama.

To understand what’s really at stake right now, watch the looming fight over derivatives, the complex financial instruments Warren Buffett famously described as “financial weapons of mass destruction.” The Obama administration wants tighter regulation of derivatives, while Republicans are opposed. And that tells you everything you need to know.

So don’t be fooled. When Mitch McConnell denounces big bank bailouts, what he’s really trying to do is give the bankers everything they want.

http://www.nytimes.com/2010/04/16/opinion/16krugman.html?ref=opinion

[dtotire]

1. He 's a real hack, a phoney; n/m

[Stuart G]

2. K and R thanks for posting this.

[lamp_shade]

3. Wonderful !!!

[rurallib]

4. Gee, it seems like everything the republicans do are for the big corporations

[mgc1961]

5. This is similar to the Right's use of "freedom."

There's a very good chance that someone using "freedom" in a political setting has absolutely no interest in or understanding of freedom. In fact, their interest is probably quite the opposite:

"Arbeit macht frei" (German pronunciation: <ˈaɐ̯baɪt ˈmaxt ˈfʁaɪ>; literally "work makes free") is a German phrase that can be translated as "work liberates" or "work makes you free". The slogan is well-known for being placed at the entrances to a number of Nazi concentration camps, including most famously Auschwitz I, where it was made by prisoners with metalwork skills and erected by order of the Nazis in June 1940.

http://en.wikipedia.org/wiki/Arbeit_macht_frei

And:

The Freedom Party of Austria (Freiheitliche Partei Österreichs, FPÖ) is a national conservative political party in Austria. Its current leader is Heinz-Christian Strache. The party sees its roots in the "freedom values" of the Revolutions of 1848 in the Habsburg areas. In April 2005, former party leader Jörg Haider and other leading party members defected from the FPÖ to form a new party, the Alliance for the Future of Austria (BZÖ).

http://en.wikipedia.org/wiki/Freedom_Party_of_Austria

And:

The Austrian School (also known as the Vienna School or the Psychological School) is a school of economic thought that focuses on the spontaneous organizing power of the price mechanism or price system. Austrian School economists hold that the complexity of human behavior makes mathematical modeling of the evolving market extremely difficult (or undecidable) and advocate a laissez faire approach to the economy, including support for a "sound money system" (which is generally interpreted as a free market gold or silver-based commodity-money system). Austrian School economists advocate the strict enforcement of voluntary contractual agreements between economic agents, and hold that commercial transactions should be subject to the smallest possible imposition of forces they consider to be coercive. In particular, they advocate an extremely limited role for government and argue for the smallest possible amount of government intervention in the economy, especially in the area of money production. Despite the School having an unbroken tradition dating back to the late 19th century, the School is now considered "heterodox" (non-mainstream) and its followers are now most frequently associated with libertarian political perspectives that emanate from such bodies as the Ludwig von Mises Institute.

http://en.wikipedia.org/wiki/Austrian_School

And:

Friedrich August von Hayek CH (8 May 1899 – 23 March 1992), was an Austrian-born economist and philosopher known for his defence of classical liberalism and free-market capitalism against socialist and collectivist thought. He is considered by some to be one of the most important economists and political philosophers of the twentieth century. Hayek's account of how changing prices communicate signals which enable individuals to coordinate their plans is widely regarded as an important achievement in economics. Hayek also wrote on the topics of jurisprudence, neuroscience and the history of ideas.

Hayek is one of the most influential members of the Austrian School of economics, and in 1974 shared the Nobel Memorial Prize in Economics for his "pioneering work in the theory of money and economic fluctuations and penetrating analysis of the interdependence of economic, social and institutional phenomena." He also received the U.S. Presidential Medal of Freedom in 1991 from president George H. W. Bush.

Hayek lived in Austria, Great Britain, the United States and Germany, and became a British subject in 1938. He spent most of his academic life at the LSE, the University of Chicago, and the University of Freiburg.

http://en.wikipedia.org/wiki/Friedrich_Hayek

And this guy:

The call to arms was issued at 5:55 a.m. last Friday.

"To all modern Sons of Liberty: THIS is your time. Break their windows. Break them NOW."

These were the words of Mike Vanderboegh, a 57-year-old former militiaman from Alabama, who took to his blog urging people who opposed the historic health-care reform legislation -- he calls it "Nancy Pelosi's Intolerable Act" -- to throw bricks through the windows of Democratic offices nationwide.

<snip>

Vanderboegh, who lives in the Birmingham suburb of Pinson, described himself as a "Christian libertarian" and said he has long been a gun rights advocate. He said he joined a clandestine militia group called the "Sons of Liberty" and later became a public leader of the First Alabama Cavalry, Constitutional Militia.

In 2006, Vanderboegh advocated hurling bricks through the windows of members of Congress who supported giving illegal immigrants the same rights as U.S. citizens, according to news reports at the time. He said those bricks should be used to build a wall sealing off the United States from Mexico.

Vanderboegh has no criminal record in Jefferson County, Ala., according to a court clerk there.

The Southern Poverty Law Center, which tracks extremist and hate groups, has been following Vanderboegh since the mid-1990s, when he first surfaced in Alabama militia groups, said Heidi Beirich, the center's research director.

"He has been on our radar forever," she said. "He hasn't been involved in any kind of violence that we know of ourselves, but these causes that he's involved in led to a lot of violence. The ideas that Vanderboegh's militia groups were pushing were the same extreme anti-government ideas that inspired McVeigh in the Oklahoma City bombing."

Vanderboegh said he once worked as a warehouse manager but now lives on government disability checks. He said he receives $1,300 a month because of his congestive heart failure, diabetes and hypertension. He has private health insurance through his wife, who works for a company that sells forklift products.

Born in Michigan and raised in Ohio, Vanderboegh said he was not always a libertarian. He once was active in the Young Socialist Alliance and the Progressive Labor Party. "In my youth, I was a communist," he said. But in the mid-1970s, Vanderboegh read Friedrich von Hayek's "The Road to Serfdom," among other books, and had an epiphany.

"From that point on, I could never take Marxism-Leninism seriously again," Vanderboegh said.

He said he long opposed President Obama because he believed the president has "collectivism" tendencies. But he became especially energized during the health-care debate.

http://www.washingtonpost.com/wp-dyn/content/article/2010/03/25/AR2010032501722_pf.html

[Jefferson23]

6. It's great to see so many slam McConnell, Simon Johnson did too.

[classysassy]

7. " Next time the fire"

brings back memories of that novel by James Baldwin, a wonderful writer.

[elleng]

8. The FLOOD preceeds 'the fire next time.'

The title comes from the old Negro spiritual "Mary Don't You Weep" and the line, "God gave Noah the rainbow sign, no more water the fire next time."<1>

'So don’t be fooled. When Mitch McConnell denounces big bank bailouts, what he’s really trying to do is give the bankers everything they want.'