In 1933, Franklin Roosevelt inherited an economic crisis. He understood that his first job was to restore confidence, to give people a sense that somebody was in charge, that something was going to be done.
This generation of political leaders is confronting a similar situation, and, so far, they have failed utterly and catastrophically to project any sense of authority, to give the world any reason to believe that this country is being governed. Instead, by rejecting the rescue package, they have made the psychological climate much worse.
George W. Bush is completely out of juice, having squandered his influence with Republicans as well as Democrats. Treasury Secretary Henry Paulson is a smart money man, but an inept legislator. He was told time and time again that House Republicans would not support his bill, and his response was to get down on bended knee before House Speaker Nancy Pelosi.
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House leaders of both parties got wrapped up in their own negotiations, but did it occur to any of them that it might be hard to pass a bill fairly described as a bailout to Wall Street? Was media darling Barney Frank too busy to notice the 95 Democrats who opposed his bill? Pelosi's fiery speech at the crucial moment didn't kill this bill, but did she have to act like a Democratic fundraiser at the most important moment of her career?
And let us recognize above all the 228 who voted no – the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing. If the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.
House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they've taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the GOP as we know it.
I've spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What's sad is that they still think it's 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed our political economy.
We're living in an age when a vast excess of capital sloshes around the world fueling cycles of bubble and bust. When the capital floods into a sector or economy, it washes away sober business practices, and habits of discipline and self-denial. Then the money managers panic and it sloshes out, punishing the just and unjust alike.
What we need in this situation is authority. Not heavy-handed government regulation, but the steady and powerful hand of some public institutions that can guard against the corrupting influences of sloppy money and then prevent destructive contagions when the credit dries up.
The congressional plan was nobody's darling, but it was an effort to assert some authority. It was an effort to alter the psychology of the markets. People don't trust the banks; the bankers don't trust each other. It was an effort to address the crisis of authority in Washington. At least it might have stabilized the situation so fundamental reforms of the world's financial architecture could be undertaken later.
Political crisis too
But the 228 House members who voted no have exacerbated the global psychological free fall, and now we have a crisis of political authority on top of the crisis of financial authority.
The only thing now is to try again – to rescue the rescue. There's no time to find a brand-new package, so the congressional plan should go up for another vote on Thursday, this time with additions that would change its political prospects. Leaders need to add provisions that would shore up housing prices and directly help mortgage holders. Martin Feldstein and Lawrence Lindsey both have good proposals, of the sort that could lead to a plausible majority coalition. Loosening deposit insurance rules would also be nice.
If that doesn't happen, the world could be in for some tough economic times (the Europeans, apparently, have not even begun to acknowledge their toxic debt), but also tough political times.
The American century was created by American leadership, which is scarcer than credit just about now.