On Monday, the U.S. House of Representatives pulled the rug out from under what was the last best hope for preventing financial chaos.
The $700-billion bailout bill was derided both from the left and the right. Ultimately though, the costs of inaction will exceed that price.
On Monday, as the House voted, stocks plunged. But this doesn’t just affect rich people. This means that workers’ retirements are deferred, education is now less accessible, and poor and middle class people across Canada and the U.S. will lose their jobs as the economy slows.
On the day the House voted down the bailout, a larger sum, $1.2-trillion, vanished into thin air. And that was only in the U.S. The TSX dropped 840 points as well. There isn’t a fixed amount of wealth and value in the world, and the total pool of money is shrinking, fast. To put that in perspective, on Monday afternoon, a value equivalent to the entire annual output of Canada just vanished.
Congress needed to plug the hole, and unfortunately, almost nobody else can. Only about three entities in the world can come up with the hundreds of billions needed to stop the bleeding and stave off disaster. They are the U.S., Japan, and China. For various reasons, Japan and China won’t, so we’re left staring at Congress.
There is a strong emotional desire to punish the Wall Street executives who led us into this mess. However, we have to keep the situation in perspective. Punishing them right now should take a back seat to saving peoples’ jobs, homes, and savings.
Whether or not you’re a fan of capitalism, it’s the system we’ve got right now. We have to work within the framework of markets in order to deal with this crisis – and it is a crisis.
The plan that was on the table Monday was far from perfect. It gave broad and vague powers to the Treasury Department and was an unprecedented intervention into markets. But something needed to happen, and this was the thing that had enough momentum to get to a vote.
Congress needs to negotiate a new plan and to do so quickly. If a couple more weeks go by, we will begin seeing huge damage to the non-financial sectors of the economy. Paycheques will start to bounce as employers lack credit to make their payrolls. Banks will begin running out of cash, and the American and Canadian Deposit Insurance Corporations will come under huge pressure as larger banks start failing and no willing buyers emerge.
When banks fail in this way, taxpayers will be left with the bill. Unless we’re willing to let people’s bank accounts vanish, we will be paying for this soon enough.
Peter Hurley is a U3 Economics and Philosophy student, and he’s suuuch a fucking capitalist. He can be reached at peter.hurley@mail.mcgill.ca. To clarify, Peter actually wants to punish the Wall Street fat cats, but not at the expense of the entire economy. He has no problem with felines in general.