Look, Ma--No Bailouts

The debate about finance reform has become almost entirely a debate about government bailouts...

In recent weeks the debate about reform of the financial markets has mostly been about government bailouts of private companies--especially banks. Not about the pros and cons of bailouts, but about whether the reform bill painstakingly negotiated by Senator Chris Dodd makes absolutely, positively sure that from now on there won't be any bailouts, ever, under any circumstances, cross my heart and hope to die. Republicans say the bill doesn't completely foreclose the possibility of future bailouts. Democrats say, yes it does. And just to be sure, here is an amendment from Barbara Boxer forbidding the use of any government money to prevent a financial company from going under. It passed the Senate, 96-1.

This is a little odd, isn't it? First, the bill is not about bailouts; it's mainly about a new regulatory regime for the finance industry. Second, there is no way, short of a constitutional amendment, that one Congress can restrain future Congresses from doing whatever they like, bailouts included. Third, in the past couple of years we've indulged in a variety of bailouts, enacted with bipartisan support. There was a consensus that, while annoying, they very likely saved our economy from a true catastrophe. The Bush administration took endless grief for not bailing out Lehman Brothers.

The TARP (bank bailout) was enacted under George W. Bush. John Boehner (John Boehner!) said it was time to put politics aside. Mitch McConnell (Mitch McConnell!!) promised to push a bill through in record time. The auto bailout was also under Bush, with much Republican support. Was the emergency a mirage? Are the 96 senators of both parties who supported the Boxer amendment convinced that there will never, ever be another financial emergency where a bailout might be the best of bad options? Forbidding bailouts is like forbidding chemotherapy, in the hope that somehow this will prevent cancer.

Of course the politicians are merely following their constituents, who according to polls are increasingly disenchanted with bailouts. Sure, now that the crisis is over. The American voter is like the man in "The Arkansas Traveler" who gets wet from a hole in his roof when it’s raining, but doesn’t feel the need to bother fixing it once the sun comes out.