Italy.

Sweden has the benefit of being much more monocultural and physically smaller. In a massive state the size of the U.S., with all the cultural issues we have on top of our physical size and the bizarre near-confederacy built into our system, it is a miracle we have made it this far.

The lighter side of deregulation.

In a world gone insolvent, an unstoppable force travels from our past to destroy our future. He is . . . The Deregulator.

http://snipurl.com/3xln8

Then kick back and enjoy America’s least favorite reality game show: Drop the Regulations!

http://snipurl.com/3xlop

But the "sensible liberals" are defining the political failure at the wrong point. Instead of having an open discussion about what needs to be done, instead Henry Paulson tried to ram through a giant bill at the last minute, threatening dire consequences if something didn't happen immediately, timing things so that there's great pressure for Congress to just say "yes" and get out of town. His own spokespeople admitted that he'd been contemplating what this bailout would look like for weeks.

Forget it. Congress should find some smaller holding action that will keep things together for a few months, and then do the real fix when we have a real president again.

I am not convinced that politics really failed on September 29 in the House. We had a hastily conceived, massively expensive plan from the Treasury, with a few ineffectual changes added by the House leadership. The public was against it, many economists said it was the wrong approach, and there was no time to consider alternatives. Voting for it might be more of a failure of politics than voting it down. It would at least have been an abdication of Congress's role.

As for lobbying distorting decision making, it's already happened. David Cay Johnston says that the chairman of Goldman Sachs was in the room with Paulson (his predecessor at Goldman) and Bernanke when they decided to take over AIG and let Lehman go under. Goldman Sachs stood to lose a lot if AIG went bust, whereas Lehman was a competitor.

The Federal Reserve still has some integrity and maybe independence, so why couldn't they decide, under a Swedish model, which firms to save and which to let go bankrupt?

The other issue is our ignorance about the US and global financial system. "Too big to fail" should be followed by "too complex to understand." Good decision making requires good information--the Congress has little and the public has almost none.

Thing is, Italy knows how to function within it's own dysfunction, they have been at it for years...U.S., not so much, although this has been brewing for years, we are not prepared for it at all, there lay the snake in the grass.

Maybe we can now stop hearing so many pious paeans to the great genius of Our Illustrious Founders, the guys who gave us this inflexible, unresponsive, creaking tub of a political system in the first place. It is thoroughly absurd that when a country's chief executive is mired at 16% approval, lounging over the carcass of a failed presidency, the people should have no expeditious manner of removing him short of an impeachment trial and conviction. We have to wait for elections that are fixed like pagan festivals to the calender, rather than triggered by political reality, and then have to wait on a "transition period." Whys should any sane Democratic country be forced to endure four more months of George Bush?

It's time for a constitutional convention.

It's time for a constitutional convention.

Well, shall we have it at the Pepsi Convention Center, or the Coca-Cola Convention Center?

I think your post is hilariously acerbic, I laughed out loud, and I completely agree that we need nothing short of a new Constitution.

However, lobbyists are already writing most of our bills. I would really, really hate to see what would happen if they wrote a new Constitution for us.

Even though it is a younger nation-state then America, or most of the major European nations, it has an ancient culture tied to regional existence. Thing is, Italy has been able to function within it's own current dysfunction for years. The U.S., not so much...even as all of our current problems have been brewing for some time, we have been caught totally off guard (well, the main stream) there lay the snake in the grass. If the economic decline does proceed, there certainly may be strange days ahead. I believe they will push through what ever they need fairly soon, which of course will only buy more time.

Anther roadblock that goes back to Puritans emigrants and the Founding Fathers and, and which is still believed by most American, centers on American exceptionalism. European culture, structure and political ideas are simply rotten. The American ideal of the yeoman farmer as superior to the European aristocrats lurks behind the charge of elitism and blocks acceptance of European solution in a global world as elistist. Think "old" Europe versus "new" Europe, which we believe has adopted our correct thinking.

Hordes of lobbyists would appear, begging for special favors for their banks. The temptation for various officials to intervene in the process would be enormous. Even if they resisted that temptation, all sorts of people would probably assume that various decisions about which banks to let fail and which to bail out had been made on political grounds. Some commentators who made this case would be bought and paid for, but others would be either political opponents of whoever was in charge, or people who just assume that government officials are corrupt by definition.

There is only one way that the Swedish Solution can occur in the United States; one course by which the lobbyists, the bankers, the special interests, and the bribe-hungry politicians have absolutely no loophole to impeding that Solution. In the face of utterly irresponsible deregulation, graft, and obscene profitmongering, the cure to the need for a bailout is to have no bailout at all.

If the stockholders are not to be reimbursed, then there is no reason for them to stay on board; they will sell out, and the bank will fail anyway.

If the depositors are to be guaranteed reimbursement for all lost funds, then it matters not a whittle whether a particular bank lives or dies; the depositors deal directly with the guaranteeing institution (being the federal government), and the middlemen---and their "cut"---are wiped from the slate at the beginning of the equation, rather than after they've pocketed their share of the proceeds.

Once the net value of "x" failed institutions either meets or exceeds the total value of bad paper in circulation, the remaining portion of the system is simply brought back online, a few doors at a time, and resupplied with a portion of the remaining pool liquidity, adjusted assets, and legitimized liabilities.

Yeah---I know, it sounds like some bizarro-world, evil Satanic kamikaze capitalism---but that's the kind or regulatory oversight we've had ever since Noot Grunge-Rich and his G-Party Jihad on All Things Democratic. You don't fight gangrene with a peanut butter sandwich.

You use an awesomely-sharp knife, and you leave your emotions on the other side of the door....

So, the U.S. is up to its collective ears in shit? Couldn't happen to a more deserving group of misogynistic, homophobic, anti-intellectual, xenophobic, Christianist, torturing warmongers. Toodles to us.....

The true failure is letting things go into crisis mode before admitting the problem and addressing it. Smart economists have been writing about the housing bubble for well over 4 years and Bush did nothing. Bin Laden determined to strike US. Whopper hurricane will hit New Orleans. Housing bubble pop will endanger economy.

If it does not fit Republican ideology, they ignore it until it becomes a crisis they cannot ignore. That is the real failure.

The Swedes, that is, entrusted to their government the task of deciding which banks should be saved and which should be allowed to go under.

What, you mean like letting Lehman Bros. fail and rescuing AIG?

The horror!

I had an occasion to ride in a police car the other day. Innocent reason, hopped a ride with an officer acquaintance. He told the tale of a fellow officer just busting to tell a joke in the squad room and get the expected laughs.
"OK, we bite, what is it?"
"Obama wants change. You know what change stands for?"
"No, what?"
"Canya Help A Nigger Get Elected?"
Get it? Oh man, my ride says it got a big round of laughter. This is just one small slice of what Obama is up against. 40 years ago this same group of policemen would've strung Obama up for looking sideways at a white girl. Nothing changes much really. Small minded, violent bigots will be with us always.

Republicans are not interested in politics and haven't been for decades. So rigid is their ideology and so deep their disdain for liberals that compromise is unthinkable.

To them, bipartisanship literally means that Democrats concede to their will -- see, everyone agrees!

That notion of a permanent Republican majority? They were serious.

Dan Kervick on September 30, 2008 at 9:23 PM

Maybe we can now stop hearing so many pious paeans to the great genius of Our Illustrious Founders, the guys who gave us this inflexible, unresponsive, creaking tub of a political system in the first place.

The irony, of course, is that by changing the world, they rendered obsolete and invalid the conclusions they'd drawn from history. History is different, and so the old rules don't work.

On the other hand, their system has survived (admittedly creaking) for 220+ years, risen above existential crises both foreign and domestic, expanded the definition of "citizen" (indeed, of "human") far beyond its original sense, saved civilization (or helped save it) at least twice, while providing a standard of living so amazing that the typical person far exceeds the wildest dreams of avarice of the most powerful of old. Not so bad.

The failure isn't in the system. The failure is in us. We live in reduced times, where we accept corruption and ignorance, where we sit back and watch cable news like it was no more significant than sport (when we can bothered to watch it at all), where we avoid the person of differing opinion and where we trust only those who already agree with us. The Founders have not failed us; it is we who have failed them, and ourselves. We have allowed ourselves to be lulled into a stupor of reality TV and Fritos; we celebrate the ignorant and mock the educated. We would rather have a President to share a beer than to solve problems, and we would rather believe the cynical testimony of implicated cronies than do the legwork to understand what's really going on.

The system hasn't been tried and found wanting. It's been found hard and left untried. American citizenship is advanced democracy and it's hard work ... too hard for too many.

The failure lies in us.

Actually, I think the defeat of this bill signified a rare political success in America. It is a shame that something just as awful, non responsive, arbitrary and capricious will get hammered out in the end, say a few days from now, and off we go to conquer Iraq again because we don't know whom else to attack for what ails us.

I would also call our problem much more fundamental than a failure in politics. It's a failure of government itself. The American Constitution was not able to withstand the right wing assault on government, which began in 1980, and today we have chaos, and nobody to lead us out of it. Even worse, we have no idea in which direction to proceed, half of us wanting more deregulation and trickle down, and the other half having no core beliefs or principles whatsoever, having ripped out their liberal spines long ago. Everyone who isn't a right winger apologizes for not being one today.

I do not understand why liberals, of all people, are so upset about the failure of this supply side "solution" to nothing to pass the first time around.

Here's the reason why Sweden was able to solve its problem - and why things here will get far worse before they get better. From Wikipedia

Sweden has a multi-party system, with numerous parties in which no one party often has a chance of gaining power alone (emph added), and parties must work with each other to form coalition governments.

Although I strongly believe we need a new Constitution, a constitutional convention would never reach a consensus on abortion or guns, so we're stuck with what we've got for the duration.

FREEZE ALL FORCLOSURES 4 90 DAYS. Gives a little thinking time for homeowners and lenders alike.

And in politics, you just about never get your first choice. And so the Republicans killed this bill. Without their cover, the Democrats couldn't save it, because politically, they couldn't take ownership of it.

Two false premises there. First, this "oh grow up, everything is compromise" business. You don't actually have a compromise when you don't have two proposals. The Democrats *from the start* treated Paulson's bill as the only possible framework, and even now they're still doing it. That's a choice by those particular people, not a systemic flaw.

Second, similarly, it's not that they "couldn't" take ownership, it's that they *wouldn't* take ownership. They *choose* not to take responsibility. Nobody in Congress wants to own anything, except goodies for the district and tax cuts. That's why they didn't propose a real alternative, that's why they did such a cynical job of whipping up support ("oh, you're in a *real* election this year, OK, you can vote No").

Their own attempts to game the system broke down, for once. But that's at the feet of those individuals, personally, not "the system". There are lots of systemic problems, yes, but lameness is not one of them.

It's hard to respond rapidly in a coherent way when:

a) nobody really knows how serious the problem is;

b) those who created the problem are in charge and demand more power instantly.

There are ways to keep things going temporarily, and the system will not collapse as long as there is real confidence that action will be taken in due course, by the right people.

There are ways to keep things going temporarily, and the system will not collapse as long as there is real confidence that action will be taken in due course, by the right people.
Either of those conditions is enough to kill my hopes.

"That notion of a permanent Republican majority? They were serious" - beep52

Exactly, most Dems have just figured that out these past few years...this was one thing the Repugs did not lie about, but no one believed them. The Repugs have become more authoritarian and lock step then previous, apparently the Dems were not paying attention.

This web comic sums it all up pretty nicely.

http://www.sinfest.net/archive_page.php?comicID=2945

the empty page
wide and deep
as a field
harrowed with
dirt turned up
ready for seed
plenty of light
a little rain
all they need
for a thought
to arise sustain
and recede
a few clouds
moonless nights
the heart will bleed
in solitude
in silence
before the mind
is freed
out onto the earth
up into the sky
to the end
of the universe
i'll hear the
endless cry
i was too busy living
to ever think i'd die

The failure of politics is solved by more and better politics: people who are able to see the situation and offer leadership to assemble the necessary forces to propose and implement solutions.

Why don't the Dems enact a progressive plan with their majority? They have the motive and the opportunity and the means, but they lack the willingness to offer leadership. They are afraid that they will get slimed by GOP ads accusing them of giveaways and socialism.

I think that Obama is the de-facto President of the USA right now. HE should suspend his campaign, go to Washington, gather the Dems around him, work out a plan, propose it and fight for it. He should act like he already won the election. The truth is that GOP is already acting like he has. The GOP congresspeople who voted against the bailout were acting exactly as they will act next year -- as an irresponsible opposition. BHO should be Presidential, in reality, not just in tone.

THe political system is paralyzed, but the human element is still active.

I think our current financial crisis is a bit different than Sweden's. Key quote from Sweden's situation... "And those that were bailed out had to write off their bad debts first."

But part of our problem is the exotic financial instruments that have disguised the risk. I'm not sure anyone knows exactly where the bad debt lies. Everyone knows it's out there somewhere and is afraid of getting stuck with it. As a result, the lending market freezes up. In this context, Paulson's plan at least makes some sense. Unfortunately, uncertainties in the bad debt put most ANY plan at risk of being ineffective and/or inefficient. Kevin Drum has a post on this today.

We all want someone to pay for getting us here... but revenge isn't constructive at this point.

DeLong is a Nordtopian dreamer.

Many economists say to do nothing.

We await the coming of the One-Armed Economist; He shall know what to do. The Bible says He shall appear in 2017.

One might point out that there would be money for a rainy day but for profligate Washington spending. Credit depends on an expectation of growing wealth; not on a dwindling pile of wealth being transferred to China in an orgy of free trade ideology, or wealth being wasted on an unnecessary war in Iraq, or wealth misspent on 1000 bases by mean old farts still fighting a Cold war that ended 30 years ago, &ct.

I agree that the two-party system is calcified, but I am certainly not brilliant enough to know what it gets replaced with in our gasping materialist empire-- a multi-party system would probably have great difficulty taking root in this country in such a way that Americans would own it as a contrast to weak parliamentary systems we see elsewhere, in Italy, Israel, Japan, Canada-- and I am not sure the revolt against the Paulson plan was necessarily a failure so much as a final pushback against the incompetent autocracy of the mortally wounded Bush Administration.

I am not really sure how we come out of this holding on to American Exceptionalism either. We have nothing to unify the country beyond its partisan lens, never mind any continued rumbling from Islamic extremism. The moderate center will probably take a long time to find itself, regardless of Obama's rise as a new brand. He has no choice but to play in his party's calcified park. This dilutes his force as a movement politician, even if he wins in November.

Steve has it right.

The market has crushed WaMu, Wachovia, Lehman and in a way, Meryl Lynch and Bear Sterns.

How can we say government would do a better job picking the strong from the weak?

Maybe they could, I'm just asking for reasons here. Data.

There's shockingly little being offered by teh critics of teh "do nothing" course.

NPR had a radio program featuring Japanese economists who were impressed with the speed of the shakeout and suggest that Japan went from 13 to 4 major banks in 13 years. We are on course to do the same thing in less than 1.

It ain't broke yet. Don't fix it.

Congress needs to build a thoughtful, effective recovery gun and have it's finger on teh trigger when it becomes clear what teh target IS. The Iraq fiasco happened because Congress RUSHED to action and didn't get good information and a proper target for its bill.

The longer the Congress has stalled, the more correct this seems to be.

I could be wrong, but there's been no sign of it that I recognize.