Shoebox already took the non-Pulp Fiction version of this question, and I do recommend you read it. I may as well throw in my 2-cents’ worth.
I firmly believe that the Democrats do want the market to crater itself for their political benefit. Unlike Shoebox, I think they’ll be successful in conning the public into believing that they are not at fault, and that one-party Socialism (formerly known as Communism) is the “answer”. After all, where else but this end of the blogosphere and talk radio (and portions of Fox News) are you going to hear about the massive role the hyper-enforcement of the Community Reinvestment Act, ordered by Bill Clinton and the Democrats, had in creating the supersized-and-crashed subprime market? Where else are you going to hear that a sufficient number of Democrats on Barney Frank’s committee voted against it to kill it?
That is not to say that the financial sector didn’t have their own hand in this. They took that mandate and ran very hard with it, with ridiculously-easy-to-get very-low-to-no-interest loans on items such as cars and credit cards. They also joined the “don’t blame me” generation, demanding that others cover their losses or else VERY BAD THINGS WILL HAPPEN! Unfortunately for us, they are virtually unique in the private sector in their ability to cause those bad things to happen, and yesterday’s historic market crash and the complete lockup of institutional credit outlined by Shoebox are but a taste of what they can cause to happen if they don’t get their way.
Still, I am glad the “grand compromise” was killed yesterday. It combined both Socialist approaches of buying up the “distressed” paper and seizing effective control of the financial sector (i.e. the Fannie/Freddie/AIG approach that failed spectacularily with those 3 entities) with almost no actual upside for those few of us that still believe in the free market. Indeed, almost everything that was sold as an “upside” merely stripped out the further overreach from the Dems’ counterproposal.
There was no addressing the government’s role in creating the subprime bubble. There was no assurance that the assets bought/seized by the government would ever be turned back over to the private sector. Indeed, if the government refused to turn a sufficient number of assets back to the private sector to pay back the $700 billion (or whatever they ultimately would have spent), they would act to make it a non-paid seizure.
So, what now? If I thought this had a snowball’s chance in Hell of flying, I’d go back to the Paulson proposal, get the decision on which securities to buy up out of the Treasury (Shoebox mentioned Mitt Romney, Asian Badger mentioned Michael Bloomberg, T. Boone Pickens mentioned the FDIC this morning on CNBC), and make it very clear that “RTC 2.0” was a temporary, one-time solution that is focused on reintegrating those securities into the private sector ASAP. Further, I would repeal the Community Reinvestment Act. Beyond the modified Paulson plan and the elimination of the CRA, nothing, and I mean NOTHING, would be a part of this. No death to golden parachutes, no tax cuts, no giveaways to ACORN, no earmarks, NOTHING!
Of course, the Democrats won’t like that; they want Communis…er, one-party Socialis,…er, screw it, Communism. Unless there is something even worse, from a free market point of view, that comes up, I don’t see any action until the next Congress. I honestly don’t know if the markets can or will hold on for another quarter, and if that crash happens in the next month, 2008 will make 2006 look like a major win.
In short, we’re fucked.