This has been an amazing few weeks. 

  • Sep. 7: Fannie Mac and Freddie Mac nationalized.
  • Sep. 14: Merill Lynch, hemmorhaging money, is bought by Bank of America.
  • Sep. 15: Treasury Secretary Paulson declares: no more federal bailouts.
  • Sep. 15: Lehman Brothers declarees bankruptcy– largest in US history.
  • Sep. 16: Government buys out AIG for $85 billion.
  • Last week: the money dried up.  Business– not the financial sector, everything– couldn’t get short-term credit.  Businesses breathe money– and they need to pay you and me– so this put the whole economy at risk.
  • Sep. 20: Paulson demands $700 billion to spend any way he likes.
  • Sep. 21: the last two major US investment banks, Morgan Stanley and Goldman Sachs, are changed to bank holding companies (allowing them to take deposits, which are a good cushion for bad times, but also accepting the more stringent regulation of banks).

I’m no economist; I’ve relied a lot on Paul Krugman to see what’s going on.  Here’s his overall summary, for instance.  Bottom line: the housing bubble burst; that left all sorts of firms dangerously in debt.  Feverishly unloading assets, they’re driving the prices even further down. 

And underlying the bubble and the subprime crisis was, quite simply, deregulation.  The strictures of traditional banks were loosened because the market could do no wrong.  (As recently as 2005, a bipartisan effort to regulate the GSEs was simply shut down by Bush.)

Despite its incompetence, the Bush administration has, as always, attempted to grab extra power without oversight or responsibility.  Paulson’s bill proposes:

Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency.

In other words, he can take $700 billion from the taxpayers, spend it as he likes, and no one can ever review or challenge him.  (If his judgment is that godlike, why was he declaring that there would be no more bailouts a week before?)  Sen. Dodd has a counter-propsal which establishes an oversight board and requires that the government receive equity in return for bailout money; that should be the minimum before handing the Bush administration another blank check. 

Scariest thing of all: there’s no guarantee it’ll work.