"It pains me tremendously to have the American taxpayer be put in this position, but it's better than the alternative," Treasury Secretary Henry Paulson croaked Sunday, in the middle of a failed goodwill tour for his proposed $700 billion bailout package.
While Paulson's rhetoric of disaster has become more strident lately, he's been warning about the grim alternative to various government bailouts for nearly a year now. Lately, the pace has become tiresomely frenetic. Every Sunday, Dr. Paulson performs a few more unnecessary surgeries, warning that more procedures are needed. Every Monday the patient fails to die, and the doctor orders a new round of treatments, with a grim admonition that this round of incisions and laughing gas is preferable to the alternative.
But when Plan A is the de facto nationalization of the U.S. economy, it's fair to ask, just how bad would these alternatives be? Where are the soaring crime rates that are supposed to accompany an economic shock of the sort Paulson believes he is cushioning? Why are real estate values gradually coasting from exospheric back to merely stratospheric levels, when Paulson's nightmare vision should have them plummeting to earth? How are mortgage rates still hovering around 6 percent and business being conducted as usual, while unemployment spikes have been contained, as we would expect, to those areas of the country where the preceding boom was the strongest? Where are all these hypothetical retirees with depleted 401(k)s (and what could they have been doing so wrong all this time, given that even factoring in recent market turmoil, the Dow has nearly quadrupled since the beginning of the 1990s)?
Bluntly, why should any of us out here on what my friends in the mainstream media call "Main Street" give a rat's ass about the declines of Bear Stearns, Lehman Brothers, Morgan Stanley, Merrill Lynch, and Paulson's old kingdom, Goldman Sachs?
Just what is the catastrophe my great grandchildren will be paying $700 billion to avert?
It seems like a simple enough question. In a moment of unintended wit, Wall Street Journal spokesman Robert H. Christie recently told The New York Times, "‘Crash,' ‘panic,' ‘pandemonium,' ‘apocalypse,' those are the words we're staying away from."
So what words should we be using?
I've been trying to get this answer since late last year, when Paulson first began to panic. The closest I came was during a group question and answer session with the Treasurer in December. Some excerpts:
Jon Healey: Many of the people we speak with don't like this because they see the results of the government's work being sustaining housing values that should have been allowed to come down.
Henry Paulson: Again, I've given my answer to that. I think what we're doing is avoiding a market failure that would have forced housing values down in a way that was not in the investors' interest, and in a way that the market wasn't intended to work.
Tim Cavanaugh: How can you force values down? Why aren't values finding their natural level?
Henry Paulson: The way values would go down is, as I've said, you'd have market failure...
Henry Paulson: ...What this will do will make a difference in that we won't have housing prices driven down in ways that distort the market because the industry wasn't able to come up with procedures to deal with an unprecedented situation.
Tim Cavanaugh: Is it distortion in the market when the market was already distorted up to a degree that maybe wasn't unprecedented, but was certainly unusual in American history?
Henry Paulson: So you'd like to see it distorted down too...
Peter Hong: Could you be a little clearer on what you mean by "market failure"?
Henry Paulson: As I've said, chaos...when I say market failure I say that we have an unprecedented situation, and the private sector has to find a way to deal with that. Otherwise you're going to see them drowning in people who can't make resets, whom they would ordinarily want to keep in a home.
Peter Hong: You used the phrase "distort down." Is it distortion or is it a correction?