Keying off an opinion piece by Paul Krugman, Eric Rauchway, an American historian (and also an old grad school colleague of mine), offers an intriguing analysis of the Bush/Paulson bailout and how it compares to the Hoover and FDR bailouts from the Depression era. The difference between 1932/33 and 2008? In 2008 (get text of leaked plan here), Congress will have no oversight and the executive branch will be “beholden to nobody and subject to no review.” (Sound vaguely familiar?) There will also be no stated restrictions on how much a given corporation can be assisted, and no requirement that corporations give the government anything back in turn. (There’s not even a requirement that the government buy the bad debt for fair market value.) Back in the 30s, however, “All loans had to be secured, couldn’t be made on foreign securities or acceptances, no more than 5% of the money could go to any one company, couldn’t exceed three years’ term, couldn’t pay fees or commission to applicants for loans, and so forth. Railroads accepting such loans had to do so under terms acceptable to the regulatory Interstate Commerce Commission.”
The idea of handing the Bush administration another blank check is hardly a happy one. We’ve been down that road before and things didn’t exactly go smoothly. But then again I’m not sure that the 1930s offers wonderful models for catastrophe management (not that Rauchway is saying that). Let’s hope that our leaders take a little time to think things through.
And, by the way, New Rule: No one on Wall Street should be allowed to make more than six figures until they’ve cleaned up their mess and reimbursed the taxpayers. Yes, wishful thinking I know, since apparently Lehman, even having gone bankrupt, has found a way to a share a $2.5 billion bonus pool.