The Big Lie

Given that when a financial panic occurs the government needs to bail out many financial institutions, it makes a lot of sense to (a) enact regulation to make panics less likely and (b) make provision for necessary interventions to be done in an orderly manner that’s financed by fees on banks. In other words, less TARP more FDIC. So how are the banksters and their new best friends in the GOP fundraising community going to oppose that?

Easy! As Chait and Drum observe you put together an ad that just flat-out lies and claims that a bill to regulate banks is a big bailouty giveaway to banks.

It’s worth stepping back, though, to observe that the really big lie behind this whole thing—indeed, the lie behind a great deal of 2009-2010 political rhetoric—is the notion that somehow the underlying principle of intervening in financial panics is something Barack Obama made up one day and that we can put a stop to by putting some honest-to-God rightwingers in office. Note that TARP was supported by George W Bush, John Boehner, Mitch McConnell, John McCain, and Sarah Palin. Note that faced with a banking crisis, Ronald Reagan organized bailouts. The Bank of England did a bailout during the Panic of 1825. Angela Merkel and Nicholas Sarkozy did bank interventions during the current crisis, and the Nordic Banking Crisis of the early 1990s was also resolved through costly interventions.

This is just what happens. In life, there are sometimes banking crises. And banking crises lead to costly bailouts. There are different ways this bailing-out can be done, some that are better and some that are worse. And there are regulatory schemes that may prevent banking crises. And you can try to make it the case that bailout costs are ultimately borne by the financial services industry. But politicians who claim that if it were up to them they would provide bailout-free governance are just lying. Recall that a House GOP revolt did in fact initially lead to TARP failing, at which point the stock market crashed and the needed pro-TARP votes were delivered.