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JOEL STEIN

Bailout? Just do nothing

No matter what, it's going to be ugly. So let's just save the $700 billion.

September 26, 2008|JOEL STEIN

I am a huge proponent, at all times, of doing nothing. Remember when everyone was filling bunkers with millet because computers wouldn't be able to handle a year with three zeros in it? I stayed Calvin Coolidge cool. After America was attacked on 9/11, I suggested keeping our armies home. When John McCain responded to the economic crisis he'd have to deal with as president by suspending his campaign, I started to think that maybe he's my guy after all.

Even though I understand so little about economics that much of my long-term investments are tied up in Costco products, I feel pretty sure that letting Congress give Treasury Secretary Henry Paulson $700 billion to buy super-crappy mortgages is not the right call.

Sure, like any American, when I see a photo on the Internet of an adorable little investment bank and find out it's at risk of being put to sleep, I want to throw in $2,000 to $3,000 of my own money to adopt it. But instead of jacking up inflation, letting the dollar sink further and paying higher taxes so we can keep up cheap borrowing -- which is what this plan amounts to -- I think we need to let those who made bad loans get burned. We need to accept that credit will dry up and that maybe -- for just a bit -- we'll have to stop buying more than we can afford.

Because it's not just the Wall Street bankers who over-leveraged their companies who are to blame. Do you have credit card debt? Did you buy a house with less than 20% down, or with an adjustable-rate mortgage, assuming that skyrocketing equity would let you refinance or flip it? Of course you didn't, because you're a super-intelligent reader of my column. But don't you think every single Rosa Brooks reader did?

Americans have been living beyond our means, and we should have recognized that fact the moment we saw those glass Voss water bottles. But we can recover from our misbehavior through a little austerity, like having only one house -- perhaps one NBA players couldn't play chicken in. More than the mistakes made along the way, however, I fear the overreaction to them, a lesson I learned from chief economist Wyle E. Coyote.

So let's not stop the short-selling of financial stocks -- the only brake on overindulgence -- as Paulson did last week. Let's not strip Congress of yet another power by giving the Treasury secretary the right to decide where to dole out a large portion of our budget. Let's not encourage more risky loans by making profits private and losses public. And let's not create some bastardized form of communism in which the new rule is, "From each according to his ability, to each according to the size of the investment bank he owns shares in."

And if we really are going to give money to the rich, let's at least follow the rules we demand other countries adopt when the International Monetary Fund bails them out: slash spending, balance budgets and eliminate trade restrictions and subsidies. We also sometimes force them to come here and clean our houses, do our gardening and watch our kids. I foresee a not-too-distant future when Chinese guys complain about how every time their cheap Google phone breaks, they can't understand the tech-support guy because his Mandarin has a thick Minnesotan accent.

More than 100 of the nation's top economists -- from the left and right as well as other countries -- signed a letter to Congress warning it not to let Paulson have his way. We can't panic at a dropping Dow Jones industrial average, rising interest rates or companies going under; capitalism means that our over-excitement will lead to some down years after a lot of good ones. But the best economic system is still one in which $700 billion of decisions are spread among all of us, not one guy who used to run Goldman Sachs and who, just this summer, said that the economy was fine.

We've got a basically sound banking system that got a little under-regulated during the Clinton administration. We just have some unsound banks that I hope will be replaced by ones with much more exciting names, such as Citi :) or the Bank of OMG. This recession is going to be ugly no matter what we do. Which is why I suggest doing nothing.

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jstein@latimescolumnists.com

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