Here it is Monday night, and the world has not ended. I used the ATM this morning, and cars filled the roads this evening. Stores are open, people are coming home from work, the mail was delivered as usual… So what happened to the Apocalypse? Didn’t the three wise men – Paulson, Bernanke and Bush – prophesy that the world as we know it would end if Congress failed to pass a $700-billion, no-strings-attached bailout package for the financial system by last Friday?
Well, Congress didn’t bite. Despite all the finger wagging and predictions of imminent doom, the highly suspect bailout package was sent packing. The stock market went to hell, of course, and financial markets shuddered around the world. Some poor wretch – a banker in England – even threw himself in front of a train and left a widow and eight-year-old son to mourn his loss.
But the world didn’t end. And it won’t end tomorrow, either. Ordinary Americans will get up, put on their clothes, drink a cup of coffee and head for work as usual. Members of Congress are taking a break for the Jewish holiday and won’t be back in session for a couple of days. They know, as I know, that the world will still be turning on its axis when they return on Thursday.
I won’t go into the details because they are boring, but trust me, America is not on the brink of another Great Depression. Not this week, anyway. We can thank Franklin Delano Roosevelt for that. He put safeguards in place to protect the American people from the folly of their financiers. Republican politicians – including Phil Gramm and John McCain – have done their best to dismantle FDR’s safeguards, but they didn’t get to finish the job before the economy got so bad that even they noticed. Thankfully, there’s still enough of a safety net left in place to stave off a Depression.
I’m sure you know about the Federal Deposit Insurance plan that ensures you won’t lose your deposit even if your bank fails. That is, of course, if you have the sense to limit your deposits to $100,000 per bank. And old people won’t starve. Again, thank you Mr. Roosevelt! It was FDR who brought us Social Security, one of Ronald Reagan’s pet peeves. So, if all else fails, we can count on that check from Uncle Sam every month.
I doubt that well run companies will collapse. Sure, a lot of banks are in bad financial shape because they lent mortgage money unwisely. Financial experts tell us that because the banks are filled with so much bad debt, they can’t trust each other to repay loans. This could create a situation in which the system of payments breaks down throughout the society. The worst case scenario is that we could not use our ATMs or credit cards or cash checks – for a day or two.
But don’t panic. The government would immediately take over the banks so that the system of payments would begin functioning again. We might have a really scary period in which the financial system freezes for a few hours or even a couple of days, but for ordinary Americans life would go on again pretty much as it did before.
A lot of bank executives would probably be out of a job, but what’s so tragic about that? For several years now, factory workers have been laid off in droves, and nobody seems unduly worried about that. And who is rushing to rescue the millions of Americans who are losing their homes to foreclosure? Not the three wise men, that’s for sure!
There will be suffering if Congress doesn’t bail out Wall Street – no doubt about that. Folks who bought shares in some – but not all – banks stand to suffer heavy losses. But you know that’s what investment is all about. You pay your money and you take your chances. That’s why interest is paid on loans – because there’s risk involved. But I predict the stock market will go up again. It always does. Bargain hunters cannot resist stocks that are as devalued as they are right now. If you can buy Wachovia shares for a dollar, why not? That’s what Citi did.
That’s how the “free enterprise” system works. And many American voters seem to like it. So I guess they should be prepared to accept the downs with the ups. Let the market manage the crisis. Adam Smith’s “invisible hand” will set things right eventually.
In the meantime, they’ll have to tighten their belts, while the CEOs with their golden parachutes drink champagne and stuff themselves with caviar. It may even do some good. If enough Americans get tired of the economic woes this country is going through, there are only a few weeks left until the general elections. They won’t starve between now and Nov. 4. They might even be strong enough to get to the polls and vote out the crazy Republican politicians and their “invisible hand.” It might be nice to have a sane economic policy in effect for a change.