The Bailout Has to Pass, And It Will

All week, I’ve been reading and watching everything I can pertaining to the big bailout.  Like a lot of people, I have mixed feelings about it: I hate the idea of rescuing everyone on Wall Street, but I don’t want to lose my job and my savings.

But as the week has gone on, and I’ve learned more and more, I’ve come to the conclusion that the bailout is the lesser of two evils.  Doing nothing would make our economy tank.  I even sort of understand why.

Here’s one story that helped me make up my mind.  It’s from the New York Times:

In 1929, Meyer Mishkin owned a shop in New York that sold silk shirts to workingmen. When the stock market crashed that October, he turned to his son, then a student at City College, and offered a version of this sentiment: It serves those rich scoundrels right.

A year later, as Wall Street’s problems were starting to spill into the broader economy, Mr. Mishkin’s store went out of business. He no longer had enough customers. His son had to go to work to support the family, and Mr. Mishkin never held a steady job again.

The parallels are chilling, right down to the fact that it’s October. 

Voting “no” on the bailout to send a message to the Wall Street “fat cats” might feel good in the short term, but it would hurt us Main Street regular cats in the long run. 

And for those who point to the relative calm in the financial markets as a sign that policymakers are crying wolf, take a lesson from the Great Depression:

At the start of the 1930s, despite everything that had happened on Wall Street, the American economy had not yet collapsed. Consumer spending and business investment were down, but not horribly so.

In late 1930, however, a rolling series of bank panics began. Investments made by the banks were going bad — or, in some cases, were rumored to be going bad — and nervous customers besieged bank branches to demand their money back. Hundreds of banks eventually closed.

Once a bank in a given town shut its doors, all the knowledge accumulated by the bank officers there effectively disappeared. Other banks weren’t nearly as willing to lend money to local businesses and residents because the loan officers at those banks didn’t know which borrowers were less reliable than they looked. Credit dried up.

The same thing is happening now:

The crucial point is that a modern economy can’t function when people can’t easily get credit. It takes a while for this to become obvious, since most companies and households don’t take out big new loans every day. But it will eventually become obvious, and painfully so. Already, a lack of car loans has caused vehicle sales to fall further.

The only upside to any disaster is the lessons we take away.  The lessons of the Great Depression lasted 80 years.  Let’s hope for the same here.

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