Salon Radio: Digby on the bailout

What are the dangers for Democrats in supporting a bailout? And why are they about to do it?


Glenn Greenwald
September 24, 2008 10:00PM (UTC)

(updated below)

My guest today on Salon Radio is Digby, and we discuss various political aspects of the Paulson bailout, beginning with her widely cited post from Monday warning of the political dangers to Democrats from joining with George Bush in approving the bailout. The discussion is roughly 35 minutes and can be heard by clicking PLAY on the recorder below. A transcript is posted here.

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We recorded this yesterday and it has become increasingly clear even since then that some permutation of the Paulson bailout is basically a fait accompli. The Hill reports that House Democrats have declared their willingness to approve the bailout provided a majority of Republicans join them. ABC News reported today that Democrats are ready to support it provided that McCain supports it as well, and the NYT summarized Obama's position as supportive of the Paulson plan with some oversight provisions and other protections added on (though without the requirement that the Government obtain an equity stake in these companies rather than ownership of their toxic assets -- the provision that Paul Krugman has identified as being an absolute prerequisite for any deal to be remotely fair or tolerable: "No equity stake, no deal").

In sum, it seems as though Democrats and Republicans -- and both presidential campaigns -- are preparing to jointly endorse some mildly improved version of the Paulson plan, on the premise that if they both do it, neither side will pay politically. As David Sirota notes, bank lobbyists have already decided they don't need to take Chris Dodd or any other intransigent members seriously because their winning is inevitable. Wall Street and corporate America can't lose in Congress -- they never do -- for one very simple reason: they own Congress and the "leaders" of it. Just listen to Rep. Marcy Kaptur; she's been in Congress for 26 years and she knows how it works:

To Wall St. insiders . . . you have perpetrated the greatest financial crimes ever on this American Republic. You think you can get by with it because you are extraordinarily wealthy and are the largest contributors to both presidential and Congressional campaigns in both major parties.

It looks like that belief on their part was well-founded and about to be vindicated.

UPDATE: In comments, Kovie notes two separate reports that suggest that part of the Democratic proposal continues to be a provision to allow taxpayers to have some equity stake in whatever companies are bailed-out. In the very well-executed press conference he just gave, Obama -- in listing the bailout points on which he insisted -- didn't use the word "equity," but said that taxpayers should be treated "like investors" for any money they give, which is roughly the same thing. It's still unclear, then, whether the ultimate package which Democrats approve will contain such a provision.

My discussion with Digby is about the reasons why all of this is happening, the political considerations driving it, and whether there is any prospect for stopping it:

To listen to this interview, click PLAY on the recorder below:

GG: My guest today is the world-renowned political blogger Digby, returning to the show, to talk about several different matters. Thanks very much for taking the time and coming back.

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D: Thanks for having me, Glenn.

GG: My pleasure. You wrote a post yesterday that I want to begin with that has received, justifiably so, a great deal of attention. I referenced it in passing in something I wrote yesterday, and a lot of other people have written about it as well. And it concerns what you believe is a very serious trap that you think the McCain campaign and the Republicans generally are setting for the Democrats with regard to the financial crisis and the pending bailout before Congress. Describe what that trap is, and what the danger for the Democrats is in your view, and we'll go from there.

D: Well, I think just to preface that, that the McCain campaign cannot be, if they find themselves associated with this financial crisis, to the extent that the Bush administration is, they have real problems, obviously, and he made some very big mistakes early on in this campaign, about short selling, pardon the pun, the idea of his economic knowledge, and most recently saying the fundamentals of the economy are strong as the stock market was crashing. So he has a problem, and one of the things that McCain has to do more than anything else, one of the reasons I think that the Republicans chose him, is that he has to separate himself from the failures of the Bush administration. Indeed, from the failures of conservatism and Republican governance generally. It's not easy to do when you're a life-long Republican. So he has his work cut out for him. This offers him an opportunity, because if he can find a way to reject a bailout that the Democrats, the majority in Congress, sign on to, he will have successfully distanced himself from both the Democrats in Congress, who are not popular, and from the Bush administration.

So, my feeling is this: that they're going to negotiate probably in bad faith, and the McCain campaign, both the campaigns of course are involved in all this, the stakes are tremendously high, we're six weeks away, or five weeks away now. So they're involved, on both sides, in the negotiations, I'm sure at some point, on some level or another. My personal feeling is that McCain will try to find a way - and it's not just him, it's the whole group of conservative Republicans, and other Republicans who are in trouble, who are seeking the same distance from the White House that McCain is seeking in the election in the fall. This offers them this opportunity to present themselves as reforming mavericks, who disapprove of George Bush and Democrats...

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GG: Okay, but let me just stop you there, and ask you this question. Let's say that the Democrats in Congress end up passing some permutation of the Paulson plan, whereby $700 billion in taxpayer money - at least - is transferred to the very institutions that, through their own recklessness have been responsible for this financial crisis, and end up propping them up, and burdening the taxpayer and the American economy, the federal government, with enormous amounts of bad debt or even equity stakes in these troubled companies. And let's say the Democrats even prevail and get some of these added improvements to the Paulson plan approved - some additional oversight protections, and I guess it'd be an equity stake in these companies, rather than just buying the crippled assets, but nonetheless facilitate the transfer of $700 billion to Wall St. over the objections of the McCain campaign and large number of Republicans.

Isn't the criticism that's going to be voiced by the McCain campaign, which is, look, the Bush administration and Congress have stood by and done nothing while the economy collapsed, and now are transferring $700 billion of your money to the very people who are responsible - won't that be grounded in some degree of truth, won't that be a valid criticism, independent of the fact that it will be so politically manipulative as well?

D: Well, I think so. And I suspect there's going to be Democrats who are saying the same thing. I don't think that this plan has any appeal to either party across the board. Obviously there are objections on both sides. What I think the Democratic, the trap they're falling into, is the idea that they have to be responsible here, and they can't play politics, and they have to rise above this. They're the majority in Congress, they're afraid of being blamed for doing nothing as well, so that's part of the problem. And they end up having this responsibility on their end to do something, and the only thing that the Republicans are setting forth, is this ridiculous $700 billion bailout. So the Democrats feel they have to meet them half way.

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Now, in the, perhaps if this situation were happening after the election, we could find some basis for thinking that everybody could sit down and try to hash out a compromise or do something. I think everybody agrees that there is a crisis, and that something, that the government needs to intervene in some respect in order to prevent that whole global meltdown. One of the problems that happened in 1929 was the fact that the government didn't intervene, and the lesson was that you needed to.

The question of course, is, how? And who benefits? And how the thing will be structured, and what the, whether or not this is just something going to become throwing money at the problem, which is generally what they blame Democrats for doing. In this case, throwing money at vastly wealthy Wall St. entities to try and help them maintain their own personal wealth. So, that is a huge problem, and I wouldn't disagree with John McCain.

I don't happen to believe that John McCain is sincere in this. If you look at his record, the biggest scandal of John McCain's life, the one that defines him is the Keating Five, and the essence of his involvement in that scandal was that he pressured regulators to lay off of S&L. That is pretty much what we are talking about here.

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GG: Yeah. It's a perfect mirror crisis in terms of what McCain's involvement is, and you're absolutely right, which is why I said that McCain's criticisms, even if valid, would be manipulative beyond what could be described.

D: Yeah.

GG: And it isn't as though he became some reformed or transformed politician since then. He's been a vigorous advocate of deregulation, he's surrounded by the lobbyists for these very industries, he's drowning in contributions from all of those same interests. So, the idea of John McCain parading around as populist crusader against Wall St. deregulation and greed is an absolute joke. At the same time, the Democrats are going to be creating exactly that opportunity if they end up marching behind people like Chris Dodd and Joe Biden who have their own extreme ties to those same industries, transferring taxpayer money to those very people.

So, while it is something that would be bothersome in the extreme, to watch McCain be able to do, it's just at the end of the day it will be hard to blame anyone other than the Democrats if that opportunity is handed to the McCain's campaign.

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D: Absolutely. This is a trap that they are - look, this happens all the time. There is a historical pattern that we can turn to, which is that Republicans make a habit of looting the treasury - this isn't the first time it's happened. During the vanted Reagan years, we had the S&L crisis which up 'till this point was the largest since the great depression, which was also a Republican crisis. And the problem is that they fetishize this idea of deregulation, they create shadow banking systems, which is essentially what the S&L scandal was, and again, here we have another shadow banking system, that they created with no regulations, and with this huge amount of exposure and risk, to the economy as a whole. They make a lot of money over a period of time; I mean tremendous amounts of money. Over the last few years, when people look at the wreckage of this particular scandal, they're going to find that people on Wall St. were swallowing a fire hose of money, for years now. We've been talking a lot about the new gilded age - this is what we're talking about. And so, they have this pattern of deregulating and creating these opportunities for themselves to take these huge risks knowing that the government is going to essentially be the bailout of last resort if it doesn't work.

This is the biggest moral hazard in world history, to allow this to happen. And we are having, we wind up again with the gun to our heads, going, well, okay, either fix it, or we're going to take everybody down with them.

GG: Right. Well, let me ask you this. One of the things that both of us have written about in the past has been the fact that every time high government officials get caught creating crimes, get caught committing crimes, beginning with Watergate and going throughout the Iran-Contra scandal and obviously all of the crimes of the last eight years, what ends up happening is the political establishment announces that it's too disruptive or too extreme, to start prosecuting high government officials, that the country needs to move on for the good of the country even if they ought to be in prison, it's important to look forward and solve all the problems of the future, and not look back and get caught up in the wars of the past. All of those -- that mentality.

And what that has done is it's created this recognition on the part of the political class, that at the end of the day, they can commit crimes, and there won't be any repercussions because that's the mentality that we've adopted. And so what's that done is incentivized lawlessness...

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D: Yes.

GG: ...and the commission of crimes, because when you remove the punishment for those crimes, you incentivize that to happen. Isn't that pretty much a perfect analogy to what is taking place now, that is - and I just interviewed a professor of finance at Notre Dame about this very issue - which is, you go and look back at some of the writings from 2000, 2001, 2002, you can find really respectable people and respected people like Warren Buffet warning that these derivative instruments were way too complex...

D: Yes.

GG: ...to even understand let alone value, he called them financial weapons of mass destruction. He said that eventually this complexity and this interconnectedness was all going to come crashing down because it relies on this fantasy that the housing prices and the mortgages behind them would forever expand in value, and whatever comes up must come down, and when that happens the whole system is going to come crashing down.

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And it wasn't like this was unknown or unanticipated. Did the people who continued to pursue this financial system despite this inevitable collapse, this recklessness, and who profited greatly, in your view, continue to do it because at the end of the day, they knew they made themselves too central to the world economic system as a whole to be allowed to fail in any massive way, because we just couldn't afford to allow them to do so? Do you think we've created the incentives for them to pursue these high-risk, high-reward and ultimately no-risk, transactions because we have adopted this mentality that when an industry that's that important fails, we're going to step in and save them?

D: Well, I don't know for sure what was in their heads, but I certainly wouldn't blame them if they made that assumption. You can't believe that any of these people would have taken this tremendous amount of risk, or at least at the very top level. One of the things that's amazing, when you bring up this thing about Warren Buffet saying this, you know, these instruments were so - they were so opaque nobody knew how they worked or where all the risks lay. That was one of the most brilliant innovations of it.

And the interesting thing about that is that it was, we had an earlier scandal in the Bush administration, big one, too - not as big as this, but it was big - with Enron and the Worldcom. And one of the things about that was they had created an accounting system that was so obscure and impossible to understand, that people just - it was faith-based. And essentially that's the same thing that's happened with this, on a much larger scale, which is that nobody knew where this paper was, nobody knew where the risk was in these instruments, so they just kind of operated on the basis of faith and waited until the moment when the whole thing came crashing down. They have to believe, especially these very, very high-flying investment banks, which were making tremendous sums of money, that these people aren't stupid, and they had to know that the risk in this was outrageous, and they also had to know that at some point they had become big enough that they would not be allowed to fail. And that's, essentially what you have then, is you have, I liked the way Obama put it, they've privatized loss and...

GG: We've privatized profit and socialized loss. Right, right, exactly.

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D: And I think that's a brilliant way of putting it. These are the greatest socialists the world has ever known, and we're financing it. I don't have an objection to the country having a bit more of a tinge of socialistic policy, at least in terms of things like health care or that sort of thing, but, my God, I really don't think Wall St. traders need to be bailed out by the taxpayers every time they make a bad call.

GG: Yes, it's just incredible that - I wrote about this earlier, in Brazil and other Latin American countries, which have a much greater tolerance level and history of actual socialism, meaning actual government intervention and ownership of all sorts of industries. The commentary has been very much along the lines of alarm at over how extreme the nationalization and what they're calling socialistic policies are in the United States. And of course it's socialism in only the most perverse sense, I mean it's not socialism designed to equalize wealth, or to provide safety nets, it's really socialism which as you say, is designed to socialize losses on the part of failed capitalists. It's the most perverse form of economic policy one can imagine, combining the worst aspects of both capitalism and socialism into one grotesque whole.

D: Yes. Well in some ways, it's actually feudalism. You find this: that we're operating as the country, the taxpayers operating as the serfs for the aristocracy, and basically our job is to prop them up when they need propping up, and to buy their products when they tell us they want to sell it to us. We've had this - I think a lot of this goes back to - I've written quite a bit about this, there's a certain heroic Randian myth in America over the last 25 years or so. You see it today; I just wrote a thing about Chris Matthews yesterday talking about King Henry, King Henry Paulson, who is going to come along and save us. Where this heroic capitalist is, we must allow him unfettered freedom, to do what he does, because we all benefit from it. It's important that we do it. And when the heroic capitalist fails, it's our job to support him, because essentially, in the Randian myth, we're parasites on these guys, we are existing only because of the great work that they do. You always hear Republicans talking about how they're the most productive members of society so...

GG: Right.

D: ...they shouldn't be penalized for their...

GG: No, that is the premise, that we can't allow them to fail because our minimal prosperity depends upon on their fantastical wealth. And the worst thing that can ever happen is that they suffer, because if they suffer, we too suffer, and therefore our priority ought to be to make sure that they're protected at all costs. That is the twisted economic philosophy that is being invoked and as you say it's grounded in this mythology.

One of the things that I find creepiest, and we both wrote about this actually, you wrote about it yesterday in the context of that horrific discussion that Chris Matthews had with Richard Wolfe of Newsweek, and was it, Lynn Sweet of the Chicago Tribune, and I wrote about it this morning in the context of the David Brooks column, which is even more overt, and basically, what they, what our political class fears more than anything else, is the involvement on the part of the masses in how we end up being governed. And what they really do believe is that there's this tiny handful of supermen, who have this towering wisdom, and this unimpeachable integrity, who ought to be vested really with what is authoritarian or monarchical power and then we will rely upon what David Brooks called their public-spiritedness, to rule over us as a benevolent oligarchy. That really is their core premise, whether they realize that or not.

It would be one thing if the oligarchs that were being recruited were truly talented and trustworthy people - there would still be profound anti-democratic problems with that, but at least then it would have some pragmatic chance of success - but the people that they're talking about vesting this dictatorial power in are the exact people who have been plundering the Treasury and who - Paulson, when he was the chairman of Goldman Sachs, was leading the way in squeezing as much wealth out of these derivative products as possible, and yet they talk about him like he's the one who's going to ride in and save us.

It seems as though the only real solution is that citizens of the country - whether on conservative or liberals, because ordinary voters on the right are being just as shafted as ordinary voters on the left are by this, and to some degree are probably just as angry - the only real solution is those people band together in this uprising and demanded a stop to this and that's why our political class seems most interested in ensuring that no matter what else happens, that never happens, and that instead we continue to look for these daddy figures. Do you see any signs of that disease abating?

D: Well, no. Frankly, no. When I have watched this election campaign unfold, it's, I've been looking for signs of that, simply because what you're talking about, you have Hank Paulson, excuse me, King Henry coming from Goldman Sachs who clearly was one of the, just until two years ago, and four months from now, he's probably going to go back into that realm, or very likely to go back into that realm, and benefit from the very thing that he's doing right now. Clearly, this is not someone we should be trusting, but even beyond that, we're talking about the Bush administration here. This is an administration that has defined the term failure on every single level. Everything they've done in a crisis has been wrong, including Afghanistan, which was considered to be his one success. It's falling apart now. You have got Iraq, you've got Katrina - I mean, this goes on and on.

And now we're having an epic economic failure on his watch. The idea of putting faith in anyone who comes from that philosophy and particularly from this administration, is mind-boggling. I mean it should be questioned from the minute - in fact, that Paulson delivered the plan to Congress and they should have immediately kicked this to the curb and said, no, we're going to come up with our own, and you'll either sign it or you won't. But, no, we're not working with you, we can't, we can't trust you. It's insane to keep doing the same thing over and over again, and expecting different results. And trusting the Bush administration is that kind of insanity. It's absurd.

Now, I expect that, and had expected that in this election, that we were going to see this uprising that you talked about, that the people were going to say, this is ridiculous, we've been electing Republican governments now for the last eight years, this was through most of it with a Republican Congress enabling every bit of it every step of the way, with a fair amount of help from Democrats. Let's not forget they're part of this establishment as well that believes these things. But, I assumed that they get, the logical thing would be to try the other team for a while, just to see, when you have one that's failing, you at least try something else. And I expect that to happen, I still think we're going to have this, Obama is going to win, the fundamentals here just scream for at least changing parties, if not changing the entire philosophy of governance. But it's been closer than I thought, and so this idea of having the daddy in charge, who're going to take care of us, in times of trouble, this has been pretty deeply inculcated in the body politic and people seem to have a hard time letting go of that.

Certainly the elites are not letting go of it, David Brooks and Chris Matthews being a perfect example. You only have strange iconoclasts like Paul Krugman getting up and saying, wait a minute, this is ridiculous, why are we, who said Hank Paulson was going to do it, no-one else wants to say that, they put him on the cover of Newsweek with the picture, King Henry. And that is their instinct, that is their instinctive response and far too many members of the public have a similar idea. That's the only reason of I can think of that they want to vote for McCain, that they actually believe that his experience being a Republican foot soldier in the Reagan revolution, which is how he describes himself, that somehow that qualifies him to be president, when in fact it should disqualify him to be president, if his governing philosophy has been discredited. We shouldn't want anyone who comes from that school to be in charge at this point. But, we're seeing a fairly close election, so I don't think we're there yet.

GG: Right. One of the interesting aspects of this is that if this $700 billion bailout in some form ends up passing, and it certainly seems like it will, it does mean that the government, which was already saddled by huge amount of debts - that's what so amazing about this, is it isn't as though we were flush with cash, and are just coming up with a trillion dollars because we have it. There is all kinds of widespread and very fundamental concern about the fact that we've become this extreme debtor nation, that is in for several trillions of dollars to all kinds of foreign creditors and the like, and now we're about to add another trillion dollars, crippling the ability of the federal government to do anything else. Which means that whoever wins the next election, is going to end up with a federal government that is incapable of really doing much other than servicing its own debt.

Now, you can look at statements from people like Grover Norquest and other ideologues of the right, who have talked about wanting to creating a situation for a long time, where the federal government is basically incapacitated, that it's just, all the assets and value are sucked out of it so that it can no longer do anything, you have that famous quote of stripping the federal government down so that it can fit in a bathtub, which we're on our way to, in terms of the federal government's ability to do anything, given the massive debt that has been piled on top of it with all our foreign adventures, and wild spending programs and now this. You think there's any intent on the part of the people who have been running the government to transfer huge amounts of assets away from the federal government, and redistribute that wealth to these of kind of crony capitalists, or is that just a happy happenstance, and by-product of what has happened?

D: Well, let me put it this way. If there isn't any intent, there's a remarkable pattern that has happened. This is something that we're seeing happen over and over again, which is that, again, I'll go back to 1992, when we were coming off of another major financial crisis, and a stock market crash in '87, and you had rumblings from the grass roots of resentment over the gilded age of the 1980s, and in comes Clinton who has plans for middle class tax cuts and health care and all kinds of things. But what happened was that, suddenly fiscal conservatism, or fiscal responsibility became the watch word, because there was this deficit, and it became an absolute mantra, coming from a whole bunch of different quarters, that that was the thing that had to be done.

And so, being a good people pleaser, Clinton went along and did that, and ended up leaving the country with a surplus, which the Republicans took over and squandered that by giving huge tax cuts to their wealthy contributors. This pattern seems to be repeating itself here. I can't say whether or not it's intentional, but it's what Grover Norquest says is part of their plan, but it is the effect of what they do, which is, when they come in office, and have a period of time to really dig in, they spend absolutely gargantuan sums of money, on wars, on things like this, on crises, on various other things, and while at the same time, perversely, starving people of actual goods and services that they need. Our infrastructure is falling apart, our health care system is basically at second or third world levels, for a lot of people. There are a lot of, the standard of living for a lot of people has actually stalled out or gone down during this period of incredible federal spending.

By the way, as you well know, we've also invested a huge amount of money in a police state, which now, we've funded more cops and more police agencies than the East Germans did at this point, after 9/11. They've set up a very interesting kind of financial structure, where you spend all your money on military and on police apparatus and have nothing left over for anything else. And indeed, you throw the country into massive debt, in order that they can't even raise the money, to do anything else. Yesterday I was listening to people on the various shows talking about this, and again, the villagers seem truly appalled at the idea that Obama has not withdrawn his plans for health care or infrastructure, research and development for energy, all these things we've been talking about in the campaign up until now, because it clearly, in their view, and I'm talking about pundits and reporters...

GG: Right.

D: ...was clearly that the situation had changed dramatically. There was no way that we were going to get health care. I mean, that's just ridiculous.

GG: You mean to give all the money to King Henry in order to give to his former and soon to be once again colleagues on Wall St., so there's no money for...

D: That is the emergency, the health care system, where we couldn't afford the S-CHIP expansion, just a few months ago,

GG: Right, what was that, $11 billion?

D: Yeah. It was too expensive, Bush vetoed it that, that was that. That was for little kids to have vaccinations and stuff.

GG: Right.

D: That was too much, but this.... And not only that, and we haven't even talked about this - which I'm sure absolutely set the hair on the back of your neck up - was that no judicial review, no agency review, no nothing on any of this.

GG: It was really, it was, when I read that proposal, I was actually surprised, not by what it said, but by how brazen it was about saying it. It was very elegant in its simplicity.

D: It really was, talk about...

GG: It was basically saying, you have to give us $700 billion and we're going to spend it however we want, and nobody can question or challenge anything that we decide. It was really the Bush mentality, the way we've been governed for the last eight years encapsulated so cleanly and perfectly in this really bizarrely straightforward document. And I think that that's what led to a lot of the reaction, the negative reaction. It wasn't that, obviously our country doesn't mind vesting unlimited authoritarian powers in political leaders as we talked about earlier, we actually want to do that, we seem to like that, I think what was bothersome to a lot of people was that they rubbed in our faces the fact that that's what they were trying to get. If they had been a little bit more crafty about how they were framing it, maybe the reaction wouldn't have been nearly as negative.

D: If I had to guess, I think that they thought they could steam-roll this very, very quickly. I think that they'd built up enough...

GG: Fear.

D: ...panic and fear that they'd be able to steam-roll it through, kind of the same way they did the authorization and use of military force. And it used this...

GG: And the way they did FISA, they literally went to Congress...

D: Sure.

GG: ...McConnell did, and it was almost - the language was actually verbatim. Of course, before Iraq the language was, and you can find lots of people saying this, they were saying things like we can't wait for the UN to act because our window of opportunity is closing, we're literally weeks away before we cross the line of no return where Saddam Hussein has nuclear weapons. When they were pushing through the FISA legislation, Mike McConnell went to Congress and said, we're talking here about highly elevated chatter, we're a matter of days away from extremely catastrophic terrorist attacks on the Congress, and the blood will be on your hands if you don't act immediately. Essentially, they're doing exactly the same thing...

D: Yeah.

GG: ...using exactly the same language. I just spoke to, as I mentioned this, this University of Notre Dame economics professor, who said, that yeah, of course it's possible that we could have the kind of very severe economic collapse that Paulson and Bernanke have been describing, in the event that these credit markets aren't accelerated and that there's not liquidity injected into these companies. But he said if you'd asked him a year ago, the risk would be zero, if you'd asked him six months ago, the risk would be .1% and if you ask him today what the risk of that is, he'd say it's 1% or 1½% - that it's possible but by no means probable, certainly not inevitable, and yet Paulson has been using the language of inevitability and did with Congress, we're days away from inevitably having our financial system globally come to a catastrophic collapse...

D: Yeah.

GG: ...unless you give us exactly this plan, and for awhile it actually did seem like it was working, and actually it still might work. We don't know what the Democrats are going to end up doing in terms of what they insist upon, or how marginal those changes are going to be.

D: Well, if I had to guess, I'd say that it is going to pass, and just judging from past, and the fact that there's an election...

GG: Right. You would think that it's not going to pass. Who could ever point to anything, even something unpersuasive, that would say that, look there's actually a chance the Democrats might say 'no' to this. There is no such evidence for that.

D: Well, I was kind of hoping though, and when I wrote the piece that we started talking about at the beginning of this, that perhaps, if we exposed this plan, on the part of John McCain, which I have no evidence of it, but it seems like the logical move to me, and I think it's what they're doing.

GG: Clearly.

D: That the Democrats can see that there is a huge political risk for them in doing this, and that they would be better off playing - horrible as this seems, but this is $700 billion, and we're dealing with the Bush administration, so, less risky than it seems - to go ahead, say to John McCain, alright, try it. And basically, if McCain and the Republicans insist on playing this game, the Democrats should play the same game, which is, that, no, we're not going to pass it, let time go by, don't do anything. Let this happen, make them take responsibility.

GG: Absolutely.

D: ... remember the Republican Party.

GG: Yeah, for purely, out of political fear, the political fear that you so incisively described, and that's exactly the reason I thought your piece was so important. Not because the Democrats can be counted on to be courageous. Not because the Democrats can be counted on to do the right thing. But because the Democrats, if they're convinced that endorsing this bailout plan could cost them the election by allowing John McCain to run against them...

D: Yes.

GG: ...on a populist platform - which is exactly what he's going to do, and I think will be quite effective - perhaps they'll be afraid enough at least politically, to say, well, we're not take this leap unless, at the very least, unless the Republicans take it with us, and if they don't, we're not going to either.

D: Right, right. I'm just hoping that what happens is that they see their own political futures, they see themselves outmaneuvered on this, and in a - it's their reflex to say, oh, okay, this is an emergency, we really need to work together. You hear this all the time, and I'm afraid we will hear this from a President Obama as well, when it, hopefully he is elected, because he comes from the same sort of school. But, at some point, they in fact have to recognize that they're playing a completely different game than the Republicans; they play a much different political game. And they are willing to play, with a very very, risky game, and the thing is it doesn't benefit either the Democrats politically, nor does it benefit the country for them to capitulate on this stuff. They lose either way, and we all lose either way. It does us no good to allow John McCain to win this election - I don't care what anybody says - so that King Henry can get his way here this week and we can get through the news cycle.

GG: Yeah, whatever the risks are, of not having this $700 billion bailout be approved, I can say with certainty, at least in my view, that the risk of having Joe Lieberman and Bill Kristol in charge of foreign policy, and John McCain making decisions about war and peace, and Sarah Palin in charge of whatever domestic policy programs they throw her and James Dobson, the risks of that happening are much worse...

D: In charge of what, that'll be her...

GG: Yeah, crusading against stuff...

D: This is true. This is the real risk. The real risk here is that the Democrats will allow John McCain to get elected. This is a close election. We don't have it running away, unfortunately. I wish there was a little room to maneuver here but there isn't. The risk of having John McCain become president at a time like this, is far, far greater than stopping King Henry's plan in its tracks, and not allowing him to get that political advantage by running against it. And he will, and he'll be right to. That's part of it - how would I argue against him? How would I say, how could I make an argument that McCain is wrong for running against this...

GG: Yeah, it'll be a cynical and inauthentic position, but it will also be the right one if he ends up opposing it.

D: All we're left with is saying, oh, but he doesn't mean it. That's just not, that's not very compelling.

GG: Right.

D: Hopefully, the Democrats - these are political animals, they're not complete idiots, they have to see that the risk here is huge to them, to allow him to have perhaps, and I've heard the argument the other way, certainly when I wrote about it I got plenty of dissent, with people saying, the American people will see this, the Democrats as being responsible, and see McCain as being irresponsible, and I think just McCain can very easily....

GG: It's the easiest issue in the world to demagogue, and it's not, at the end of the day, it's not even demagoguery, because it's true, that the idea of handing over $700 billion in taxpayer money to these extraordinarily rich investment bankers who created the problem to begin with, is a despicable thing to do, and it shows how the establishment in Washington is the Democratic Congress and the Bush administration, and McCain and Palin are running against it. So, it's something that would be so easy for him to do.

I guess, one question, and let me leave it at this, is what about the possibility of having the Obama campaign, of having Obama take the position that he too is against it, but having the Democrats do it anyway? Does that undermine the advantage that McCain would get from having this happen?

D: It would, but I don't think it would be very believable. The difference is, is that, number one, Obama hasn't really been running against the Democratic Congress, whereas McCain has been trying desperately, to, both trying to separate himself from Bush, and not alienate his base. I think he has finally solidified his base. I think the Palin pick and the fact that he did that, was enough; they required a sort of genuflection to them, a serious one...

GG: Right.

D: ...in order to convince them that he was one of them, and I think Palin did that for him. I think that was entirely her function. So, I think he has more room to maneuver than Obama does on that.

And secondly, he's a member of Congress too, and I think that if he votes, he's got to vote for it. I don't think voting against it, and having the majority in Congress pass it is going to be enough for him. Everybody hates Bush, everybody knows that he's no longer relevant really, except to the extent that he can screw things up, whereas Congress still is a vital part of the governing process I think. And I think Obama has more responsibility or more association with them. As I wrote yesterday, I think that he is seen now, he's the head of the Democratic Party, of course, as the nominee, and he is the de facto head of Congress, and he will seen as the leader.

GG: Right.

D: If he goes against them, I don't think it has much salience with the people, and certainly McCain will not let his vote against it let Obama's vote against it stand in the way.

GG: Right. But let me ask you this, and this will be my last question, which is, the other side of that, though, is, let's say the Democrats do decide, they do do the smart and good thing, in the improbable scenario, which is, they decide they're not going to go along with this bailout, they propose something fundamentally different, or they throw up enough added provisions that Bush ends up saying that he will veto it. If that happens, if the market actually starts to believe that this bailout is truly in danger, it's almost certainly the case that there will be further significant deteriorations in these economic markers. I mean, the market will definitely continue to decline, the dollar will probably take an immense beating. Don't the Democrats have the opposite risk as well, of being depicted as being an impediment to this urgently needed financial bailout, and if they stand in the way of it, and the economy continues to collapse, they'll have that blamed on them also?

D: Sure. Sure, and that's what they're, that's certainly what they're afraid of. They're always afraid of that. What if it goes the right way? What if it happens the way they're telling us? In other words, the boy comes, cries wolf, and what if this time there really is a wolf? Then where will I be?

And they're always in that position, and have been for the last eight years. Again, the risk is a McCain presidency, so, which is worse? Of course, they're in a horrible position - we're all sitting here wondering what the hell's going to happen, but at this point they really, really should have learned, that when it comes to these massive crises, when faced with the Bush administration, that whatever they Bush administration wants to do, is almost always going to be worse.

And believe me, if they pass the thing, and the economy continues to go down, which, according to...

GG: To everyone, no-one thinks this will fix anything.

D: So they'll be blamed for that too, and they'll be blamed for spending $700 billion that they didn't need to spend. So, I don't know. Yes, it's a tough decision. It's a tough gig, running the most powerful nation in the world at a time of crisis, but at this point they really need to be smart and not to fall into the trap and say, oh, well, I'll go along with it, with what the other guy wants to do, and if it doesn't work out, they'll be blamed. It just hasn't worked that way; they won't be blamed. They, the Democrats will be blamed equally, if not more, at this point because they're leading the Congress and Bush is a lame duck.

GG: The worst thing about all this, is that, we've seen this game so many times, and we know, one has told oneself so many times, like, look, this, the Democrats doing X is way too stupid politically, or way too unconscionable substantively, even given how little esteem one holds the Democrats in, to believe that they're actually going to do it. Every single time...

D: I know.

GG: ...when you think that, they go and end up doing what you're sure they won't do. Even if you don't have any faith in their integrity, or in their commitment to do the right thing, even if you believe that they're completely complicit in all of the policies of the Bush administration because they believe in it, as some people argue, to the same extent that the right wing does. Even if you want to believe that, they're still, as you say, they're still political animals, and these actions are so politically self-destructive to their own interests that you'd think that at least that will prevent them from doing it, and yet, they always end up amazing you by going and doing it, and so it's very hard to envision them here doing anything other than the absolute dumbest thing, and I think you're right, though, the best chance for convincing them they shouldn't, is not by appealing to their sense of what is unfair policy, or what is destructive policy, but appealing to their own intense desire to win this election.

D: That was my hope, that somehow or another - not that I have any particular personal influence - but just that, that idea would gain some circulation, because I really do think it's a huge, huge opportunity for John McCain to be the maverick he's been pretending to be. It could very well work for him; this is a close election, and I think that - I don't know, I don't know what the polling is saying, other than - this is pretty preliminary stuff we're seeing - that the public is not in favor of this bailout. They're instinctive reaction is, whoa, what are we talking about here? So, I don't know that Democrats will be rewarded for doing the right thing, even in the short term, and in the long term I think they're just going to get killed for it. I think it's absolutely deadly for them. Talk about tax and spend Democrats. And anything they put into this bill, to make it a little bit more equitable, the homeowner, the various homeowner provisions, or what have you, they're going to be, they're going to be completely harassed by the right for having creating moral hazard, and allowing all these homeowners who make bad loans to get out of it. They're already saying that.

GG: Right, what happens, by improving - quote unquote "improving" - the Paulson plan, they make it their own, and I don't know of anybody, there's nobody who says that things are going to get better. Everybody agrees things are going to get worse. The question is, how much worse are they going to get. So, by making this plan their own, by authoring it and sponsoring it, and advocating for it, and demanding these provisions, all that's going to happen is they're setting themselves up to be blamed for what inevitably is going to be the continued economic worsening.

D: Exactly.

GG: You're right; Republicans will depict them as the liberal socialists. Exactly. So it's an absolute no-win situation for them to do anything other than stand by and do nothing until the Republicans and the McCain campaign are at least completely on board. And that's the political consideration, independent of what they ought to do.

Well, anyways, this was an excellent and very interesting elaboration of what I think was really an important point, and hope that by getting it more circulation, it'll worm its way into the circle of decision-makers that will decide what the Democrats will do here, for the reasons we discussed...

D: Well, you know, I'll tell you, if I were a betting person, I wouldn't bet on it, but who knows. Anything could happen.

GG: We'll rely on our faith Exactly. Alright, Digby, thanks so much. I really appreciate it.

D: Thanks so much, Glenn. Take it easy.

[Transcript courtesy of Thames Valley Transcribe]


Glenn Greenwald

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