Our country is at a rare and dangerous juncture. The old order is crumbling, and virtually all the centers of power that govern us have been discredited by events. The president is irrelevant, weak and unbelievable, even to his own party. The Democratic majority controlling Congress is stalled by its own shortcomings. The treasury secretary, given his arrogant approach to the financial crisis, is not to be trusted as a steward of the public interest. Nor are the conservative Federal Reserve and its chairman. The private power of Wall Street is utterly disgraced and desperate.
This condition of vulnerability is sure to prevail for at least the next three months, until a new president and new Congress take office. In the meantime, the governing elites are clinging to the old order, trying to salvage it by delivering massive amounts of relief from taxpayers to the failing financial institutions. The American people correctly see this approach as a historic swindle that rewards the villains at the expense of the victims. A Nevada real estate broker asked the Washington Post, “Instead of having a bailout, why don’t we have indictments?”
Indictments can wait, along with fundamental reforms. Right now the country needs to confront the fire raging through the financial system and engulfing people and productive assets in the real economy. Aroused and angry, the public, for a change, can play a decisive role in the political arena, as it did when the House rejected the bailout package. That shock to the system was valuable therapy. People can drive politicians to begin facing reality and to develop a more forceful strategy for national recovery, an approach that serves the country as a whole and has a far better chance of succeeding. The sooner our leaders recognize that the old order is gone, the sooner Americans can begin reconstructing a more viable and equitable economy.
The calamitous unwinding of financial institutions in recent months has an ominous resemblance to events that unfolded after the stock market crash of 1929, when three years of recurring waves of bank failures and economic contraction led to massive suffering. The government, led by the Federal Reserve, was scandalously derelict during that crisis. This time Washington has reacted more aggressively but still hasn’t found a strategy to stabilize finance or reverse the gathering recession.
Another total collapse like the one in the 1930s may still be avoided if politics changes direction. We do have some factors in our favor. First, our living standard is abundant by comparison, despite our indebtedness to foreign nations. Second, the New Deal created economic mechanisms that remain in place as automatic stabilizers, like federal deposit insurance to prevent disastrous runs on banks like the ones that wiped out more than 10,000 back then.
Given the political paralysis, people have to find their own way. Corny as it sounds, the necessary first step is honesty–getting a clear understanding of what we are facing and what can be done, then forcing our views and ideas on the governing circles in both parties. The bitter tragedy of our era is that the hard lessons Americans learned during the crisis of the New Deal years have been tossed aside–either repealed or systematically subverted–by the present generation of governing elites. Democratic partisans who claim an aura of innocence are falsifying the past. For the last generation, Democrats have colluded with conservatives in the destruction of New Deal law and principle. And Democrats do not yet have a clear idea of how to restore those lost lessons and update them for our present predicament.