The Administration that Cried Wolf

(updated below, three times)

In surveying opinion around the blogosphere and reading the latest polls, one thing stands out at me. There are a lot of people out there who think the seriousness of the current economic crisis is being overstated by the Bush administration in order to ram through the legislation it wants. Many people think this is a replay of the alarmism that led to the passage of the Patriot Act, the Iraq War resolution, the Protect America Act and various other Bush administration proposals that we were told absolutely had to be passed right away--without serious deliberation--or else Very Bad Things would happen.

I completely understand that reaction. Over the last eight years, the Bush administration has, time and again, tried to whip up hysteria in order to scare legislators and the public into supporting various pieces of legislation. But I don't think that's the case right now. If anything, I think the situation is much worse than the administration is letting on. I think they're genuinely afraid that if they spell out exactly how perilous the situation is, it will scare the hell out of people and become a sort of self-fulfilling prophecy.

To put another way, we have an administration that has cried wolf so often in the past that people don't believe them now that the real wolves are closing in. But they are. For a good understanding of the current situation and how bad things almost got last week, I recommend these three links.

I don't know if any of the proposed bailout ideas will work, but I'm pretty convinced that we need to try something, and I don't think we have very long to think about it. That's why I find polls showing a substantial majority of American's opposing the idea of a bailout--while understandable--very problematic. This is an election year and if 75% of Americans don't support a bailout, it puts members of Congress in a very difficult position and encourages the worst kind of cynical gamesmanship.

I think both Congress and the Bush Administration to need to consider what can be done to impress upon people the seriousness of the consequences of doing nothing. Clearly the administration has no remaining credibility in this regard, but there may be ways to allow the economy to continue on its present trajectory just long enough to get the point across. It's a delicate balancing act--showing people the precariousness of the economy without accidentally pushing it over the edge--but it may need to be done. Crying wolf isn't enough. People need to see the wolves themselves.

UPDATE: The more I read, the more I think that voting for a bailout--at least without the public having a greater understanding of the consequences of doing nothing--is not politically tenable for Republicans or Democrats. I wonder if there are enough members of Congress who are not facing real opposition in November to pass a bailout while allowing anyone in a contested race to vote no. We may see a situation where the Democrats and Republicans with safe seats decide to take a bullet and let everyone else (including the presidential candidates) vote no.

UPDATE II: Kos just wrote this:

I'm still trying to get all of this straight...

So Treasury gets congressional leaders into a room, and gives them a briefing so horrified, that they all immediately aged 20 years and came out with white hair and immediately got to work on pissing away $700 billion to Wall Street.

They're terrified, we're told! It was horrible!

So why not slap that presentation online? Why not share this with the American people?

This isn't Iraq, where you can pretend that the information is "top secret" and must be protected lest disclosure amount to a security breach.

In this case, we're probably talking financial projections, maybe an excel sheet or two.

So put it online so the rest of the country can see what supposedly has our fearless leaders in a panic.

Look, Kos is a smart guy, but he's not thinking this one through. What we're basically dealing with here is a crisis of confidence in our massive shadow banking system. The only thing that is keeping the entire system from unraveling is the fact that many people don't quite understand how bad the situation is. If the administration were to do what Kos wants and publish their worst fears online, it might well trigger exactly the sort of panic that crashes the whole system. For instance, our money market system is basically a massive uninsured, under-capitalized depository system. If there's a panic driven run on that system (which almost happened last week), then trillions of dollars of assets would have to be sold at fire-sale prices and people's money would be lost or temporarily frozen. Not only do millions of individual investors keep their short-term cash reserves in money market funds, but most companies, states, and municipalities do as well. We're talking about companies, cities, states being unable to pay their bills, unable to make payroll, etc. And that's just the start of it. Suffice it to say, it would not be a good idea for the Bush administration to air its worst fears publicly.

UPDATE III: Atrios and Chris Bowers join the growing "there is no crisis" chorus. I share their frustration, but I don't think their logic makes any sense. Maybe the current fears are overblown (though I honestly don't think so), but I'm absolutely positive that the Bush administration genuinely believes that we have a serious crisis on our hands. Unlike the Iraq War or Social Security or FISA debates, this is not a case of the Bush administration trying to push through some sort of legislation it has always wanted by using a ginned up "crisis" as pretext. This is the administration throwing all their professed principles to the wind and coming hat-in-hand to a Democratic Congress to ask for help. It is an obvious confession of failure and deeply embarrassing to the administration; it is something Bush and company would not have done in a million years unless they had no other alternative.

That of course doesn't mean that Democrats should just give them whatever they want. But there's little doubt in my mind that the concern they're expressing is genuine. The reason they waited until last week to approach Congress wasn't because they wanted to ambush Congress. It was because they were hoping the problem would resolve itself and not spiral out of control. They were hoping to spare themselves the embarrassment of having to ask Congress for a bailout. But by last Thursday, everything was unravelling rapidly and they had no other choice.