I just got around to reading Glenn Greenwald’s much-discussed post from Monday about how the Bailout follows the 10 normal principles for how our government functions. I agree with a couple of his points (that the concessions Treasury made to Congressional leaders in drafting the bill were mostly a joke; that a lot of economists don’t think Treasury’s approach is the best), but it’s also a great example of how everybody sees the world through a lens distorted by their priorities and experiences.
Greenwald sees this financial crisis, and the government’s reaction to it, through a lens distorted (or polished, if you prefer) by his obsession with the Bush Administration’s past mendacity and power grabbing. So what Paulson is doing is pretty much by definition an unjustified putsch.
I tend to see Paulson’s actions through a lens distorted (or polished) by my knowledge of past financial crises. Most of the ones I know about (the Great Depression of the 1930s, the Asian financial crisis of the late 1990s, the Scandinavian financial crisis of the early 1990s–and let’s not forget the near-panic of 1914) were eventually resolved by governments temporarily assuming extraordinary powers over the financial system and the economy as a whole. So while I have a lot of doubts about the particular approach chosen by Treasury, the idea that taxpayers are going to need to pony up a lot of money and give Treasury some leeway in deciding how to use it doesn’t seem crazy to me at all.
Paulson now works for the United States Treasury, but his instincts are the same as always: even if for no other reason than to boost his own ego, he’s going to want to drive the hardest bargains possible — and the weaker the opponent, the harder he’ll push.
Don’t believe it? Take a look at the Fed/Treasury actions so far. Was the Bear Stearns rescue a sweetheart deal? No. In fact, the original $2 per share terms were so onerous that JP Morgan, which bought Bear, eventually raised the offer voluntarily. And what about Lehman Brothers? Would a Wall Street crony have let Lehman fail? Nope. The next day AIG was rescued, but read this and tell me if you think AIG got any kind of break in return for its $85 billion loan. They didn’t. AIG got hammered.