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Hullabaloo


Thursday, December 11, 2008

 
Block Heads

by digby

So, the Republicans are saying that if the Democrats don't agree to destroy the unions, they will block any loans to Detroit, and allow the auto companies to fail. And even that might not be enough to stop them because this wrecking crew seems have decided that the country needs to understand that if they vote for Democrats the Republicans will make them pay by ushering in another great depression.

If you think I'm being hyperbolic, read this interesting post called "Could Detroit Trigger A Global Meltdown" in today's Daily Beast (via Jane Hamsher) about the near bankruptcy of New York 30 years ago. The Republicans were eager to let the city go bankrupt and Gerald Ford dutifully followed their usual Hooverian economic ideology (over some objections within the administration) until he went to Europe for an economic summit. He was told that Europe considered such a thing so unthinkable that markets would likely see it as American itself going bankrupt and set off some very serious consequences. He backed down and decided to help the city:

Even today you can argue that what New York City went through was a virtual bankruptcy and a "cram down" of sacrifices. The "moratorium" on the debt principal was the equivalent of the default everyone tried to avoid.

But what was avoided was something unknown. I wouldn't argue today that banks around the world would be threatened by a bankruptcy of the American auto industry. Indeed, some European leaders are warning that a federal rescue of Detroit would be seen as "protectionist," necessitating retaliatory trade steps in Europe. There is another crucial difference between a city and car companies. While going through a painful contraction, New York City got away with delivering fewer services to its customers. The auto industry would have to make cars that Americans still wanted to buy.

But who can be sure that if the Big Three automakers go down, it won't be like Lehman Brothers earlier this year, with surprising impacts around the world and at home? Would a default of the auto companies lead to collapses of countless suppliers and businesses around the country, or to Michigan and other states, or to financial institutions connected to them?

In his 1980 book on the city's fiscal crisis, "The Cost of Good Intentions," the author Charles R. Morris—who more recently warned of a global meltdown because of subprime mortgages—was fascinated by the subject of why everyone in the middle of the crisis had difficulty understanding what was happening around them. "Maybe we were dumb," Beame's deputy mayor, James Cavanagh, famously stated after the city's brush with financial ruin, "but nobody else seems to have understood what was happening either."

Then as now, an aphorism from Felix Rohatyn would seem to apply. Never place a bet that you can't afford to lose.


Republicans spent the last eight years like drunken sailors on their first shore leave after years at sea. They wantonly drained the treasury of billions and billions of dollars on harebrained schemes to induce "birthpangs of democracy" around the world, chasing phantom enemies and enriching their defense contractor contributors. They created a lobbying culture so corrupt it finally collapsed of its own weight. They deregulated the financial industry so thoroughly that it created an elaborate ponzi scheme that has just about destroyed the world economy.

They have no standing to lecture anyone about responsibility, fiscal or otherwise, and no right to obstruct the cure for the problem they created.

It's true that Democrats have, over the years, enabled Republicans and helped their ideology to run amock. But right now they are all we've got and their intentions, quite clearly, are to keep the economy from tanking, if only out of self interest. The Republicans are blocking this bridge loan for both narrow parochial reasons and longterm partisan gain. There's no other way to interpret this otherwise inexplicable unwillingness of the Republicans to even grant a short term bridge loan. They want the economy to fail.


Update: ABC is reporting that there might be a handful of semi-sane Republicans who will stop this game of economic Russian roulette. Let's hope so.


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