No Credit

The credit market debacle that has played out over the past few weeks has many causes, but one overriding theme—irresponsibility. At the bottom, borrowers were irresponsible for agreeing to mortgages that they knew they couldn’t afford, irrationally hoping that housing prices would rise indefinitely. Mortgage lenders were irresponsible for offering loans that lured house buyers in with low initial payments and then ballooned into crushing debt payments in just a few years. Politicians on both sides of the aisle were irresponsible for allowing political correctness and racial politics to drive changes in regulations that lowered limits on the credit worthiness of borrowers. Wall street firms were irresponsible for packaging and reselling the debt without regard to risk should the housing market tank (as it did). Along came a housing market crash, and we had the perfect storm.

Top to bottom—irresponsibility, and who pays—those of us who are responsible, who pay our taxes and keep our debt low, that’s who.

David Brooks comments on the current drama:

Inspired in part by Paul Volcker, Nicholas Brady and Eugene Ludwig, and announced last week, the Paulson plan is a pure establishment play. It would assign nearly unlimited authority to a small coterie of policy makers. It does not rely on any system of checks and balances, but on the wisdom and public spiritedness of those in charge. It offers succor to the investment banks that contributed to this mess and will burn through large piles of taxpayer money. But in exchange, it promises to restore confidence. Somebody, amid all the turmoil, will occupy the commanding heights. Somebody will have the power to absorb debt and establish stability.

Liberals and conservatives generally dislike the plan. William Greider of The Nation writes: “If Wall Street gets away with this, it will represent an historic swindle of the American public — all sugar for the villains, lasting pain and damage for the victims.”

He approvingly quotes the conservative economist Christopher Whalen of Institutional Risk Analytics: “The joyous reception from Congressional Democrats to Paulson’s latest massive bailout proposal smells an awful lot like yet another corporatist love fest between Washington’s one-party government and the Sell Side investment banks.”

Thanks to their criticism, the plan will be pinned back. Oversight will be put in place. But the plan will probably not be stopped. The markets would tank. There is a hunger for stability, which only the Treasury and the Fed can provide.

So we have arrived at one of those moments. The global financial turmoil has pulled nearly everybody out of their normal ideological categories. The pressure of reality has compelled new thinking about the relationship between government and the economy. And lo and behold, a new center and a new establishment is emerging.

It is, indeed, “one of those moments.” It is not a time for Speaker Nancy Pelosi, in what appears to be a reflex reaction for her, to fall back on partisan politics. It is a time to allow adults (and that eliminates about half of congress including the its leadership) to manage (note I did not say solve) this problem expeditiously. After markets stabilize, we can have hearings, pass regulation and play the blame game that is Washington raison d'etre. But today, let’s move to get things under control. Country first.