Never underestimate the power of populist scare-mongering | FT Alphaville

Never underestimate the power of populist scare-mongering

Wonder why Hank Paulson’s proposed $700bn US financial sector bailout plan was rejected in Congress? Even as political leaders try to salvage the scheme, with possible plans to present a version of the bill in the US Senate on Wednesday, the scare-mongerers, doom-sayers and populists are at it again.

Without giving them too much credit, it’s clear that the wave of dire warnings, mocking commentary and panicked emails sent around in the days leading up Monday night’s disastrous vote had some effect – not least on politicians ever-mindful of their standing with voters. On that issue, figures such as filmmaker/activist Michael Moore (who declared the plan was a “coup against America”) and comedians such as Jon Stewart knew exactly how to hit them where it hurts.

Willem Buiter eloquently sums up the power of populist opposition to the bailout plan with the following on his Maverecon blog:

Opposition to the proposal came from two different sources. A few remaining libertarians and believers in unfettered free enterprise voted against. Even when they recognise the risk that a calamitous collapse in economic activity may result, they view this as a form of creative destruction that is an integral part of a Darwinian market economy.

I don’t know anything about Gresham Barrett, a Republican congressman from South Carolina but his statement fits the bill: “My fear is the government will be forever changing the face of the American free market. Because I believe so strongly in the principles of the free market and the belief in freedom, I will be opposing this bill.” Those who genuinely hold these views are mad, but honest and principled. I wish them a good depression.

But a larger body of nay-voters consists of populist rabble-rousers or, worse, politicians who know better but follow the whims, fancies and passions of their constituents, even when this means that before long the real economy risks falling off a cliff.

A nice example of this comes from Ted Poe, a Texan Republican member of Congress, who said: “New York City fatcats expect Joe Sixpack to buck up and pay for all of this nonsense,”… “Putting a financial gun to the head of every American is not the answer.” Which prompts Buiter to conclude:

The dedicated followers of constituency fashion reckon that the date of the election is likely to be before the full impact of the financial collapse made likely by this vote will hit their constituents’ jobs and businesses. They put re-election before the economic health of the nation and the interests of their constituents. Opportunism guides them rather than principle. I wish them a rather nasty depression.

Writing in the FT on Tuesday, commentator Charles Wyplosz put it thus: “With people angry and scared at what may happen next, political leaders find it more difficult than usual to resist populist tendencies and seek to distance themselves from a possibly serious downturn”.

On the issue of scare-mongering, however, one can’t go beyond filmmaker/activist Michael Moore. As countless politicians, gun enthusiasts and auto executives know too well, things turn very ugly when Moore gets involved.

Here’s an edited excerpt of an email by Moore that has been doing the rounds – and undoubtedly has been forwarded to hundreds and thousands (if not millions):

The Rich Are Staging a Coup This Morning

A message from Michael Moore:

Let me cut to the chase. The biggest robbery in the history of this country is taking place as you read this. Though no guns are being used, 300 million hostages are being taken. Make no mistake about it:

After stealing a half trillion dollars to line the pockets of their war-profiteering backers for the past five years, after lining the pockets of their fellow oilmen to the tune of over $100bn in just the last two years, Bush and his cronies — who must soon vacate the White House — are looting the US Treasury of every dollar they can grab. They are swiping as much of the silverware as they can on their way out the door.

No matter what they say, no matter how many scare words they use, they are up to their old tricks of creating fear and confusion in order to make and keep themselves and the upper 1% filthy rich. Just the first four paragraphs of the lead story in last Monday’s New Times and you can see what the real deal is:

“Even as policy makers worked on details of a $700bn bailout of the financial industry, Wall Street began looking for ways to profit from it… Financial firms were lobbying to have all manner of troubled investments covered, not just those related to mortgages….At the same time, investment firms were jockeying to oversee all the assets that Treasury plans to take off the books of financial institutions, a role that could earn them hundreds of millions of dollars a year in fees….Nobody wants to be left out of Treasury’s proposal to buy up bad assets of financial institutions.”

Unbelievable. Wall Street and its backers created this mess and now they are going to clean up like bandits. Even Rudy Giuliani is lobbying for his firm to be hired (and paid) to “consult” in the bailout.

The problem is, nobody truly knows what this “collapse” is all about. Even Treasury Secretary Paulson admitted he doesn’t know the exact amount that is needed…The head of the congressional budget office said he can’t figure it out nor can he explain it to anyone.

And yet, they are screeching about how the end is near! Panic! Recession! The Great Depression! Y2K! Bird flu! Killer bees! We must pass the bailout bill today!! The sky is falling! The sky is falling!

Falling for whom? NOTHING in this “bailout” package will lower the price of the gas you have to put in your car to get to work. NOTHING in this bill will protect you from losing your home. NOTHING in this bill will give you health insurance. Health insurance? Mike, why are you bringing this up? What’s this got to do with the Wall Street collapse?

It has everything to do with it. This so-called “collapse” was triggered by the massive defaulting and foreclosures going on with people’s home mortgages. Do you know why so many Americans are losing their homes? To hear the Republicans describe it, it’s because too many working class idiots were given mortgages that they really couldn’t afford. Here’s the truth: The number one cause of people declaring bankruptcy is because of medical bills. Let me state this simply: If we had had universal health coverage, this mortgage “crisis” may never have happened.

This bailout’s mission is to protect the obscene amount of wealth that has been accumulated in the last eight years. It’s to protect the top shareholders who own and control corporate America. It’s to make sure their yachts and mansions and “way of life” go uninterrupted while the rest of America suffers and struggles to pay the bills. Let the rich suffer for once. Let them pay for the bailout. We are spending $400m a day on the war in Iraq. Let them end the war immediately and save us all another half-trillion dollars!

I have to stop writing this and you have to stop reading it. They are staging a financial coup this morning in our country. They are hoping Congress will act fast before they stop to think, before we have a chance to stop them ourselves. So stop reading this and do something — NOW! Here’s what you can do immediately:

1.. Call or e-mail Senator Obama. Tell him he does not need to be sitting there trying to help prop up Bush and Cheney and the mess they’ve made…Tell him the rich have to pay for whatever help is offered. Use the leverage we have now to insist on a moratorium on home foreclosures, to insist on a move to universal health coverage, and tell him that we the people need to be in charge of the economic decisions that affect our lives, not the barons of Wall Street.

2.. Take to the streets. Participate in one of the hundreds of quickly-called demonstrations that are taking place all over the country (especially those near Wall Street and DC).

3. Call your Representative in Congress and your Senators. (click here to find their phone numbers). Tell them what you told Senator Obama.

When you screw up in life, there is hell to pay. Each and every one of you reading this knows that basic lesson and has paid the consequences of your actions at some point. In this great democracy, we cannot let there be one set of rules for the vast majority of hard-working citizens and another set of rules for the elite, who, when they screw up, are handed one more gift on a silver platter. No more! Not again!

Michael Moore

P.S. Having read further the details of this bailout bill, you need to know you are being lied to. They talk about how they will prevent golden parachutes. It says NOTHING about what these executives and fat cats will make in SALARY. According to Rep. Brad Sherman of California, these top managers will continue to receive million-dollar-a-month paychecks under this new bill. There is no direct ownership given to the American people for the money being handed over. Foreign banks and investors will be allowed to receive billion-dollar handouts. A large chunk of this $700bn is going to be given directly to Chinese and Middle Eastern banks. There is NO guarantee of ever seeing that money again.

PPS: The Dems handed a stolen election over to Bush. The Dems gave Bush the votes he needed to invade a sovereign country…THESE DEMOCRATS ARE ONLY AS STRONG AS THE BACKBONE WE GIVE THEM. CALL CONGRESS NOW.

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And now for a milder, gentler objection, here’s another email doing the rounds:

The Birk Economic Recovery Plan
T. J. Birkenmeier, A Creative Guy & Citizen of the Republic

I’m against the $85,000,000,000 bailout of AIG. Instead, I’m in favor of giving $85,000,000,000 to America in a ‘We Deserve It Dividend’. To make the math simple, let’s assume there are 200,000,000 bonafide US citizens 18 years and over. Our population is about 301,000,000 +/- counting every man, woman and child. So 200,000,000 might be a fair stab at adults 18 and up. So divide 200m adults 18+ into $85bn – that equals $425,000.00. My plan is to give $425,000 to every person 18+ as a ‘We Deserve It Dividend’.

Of course, it would NOT be tax free. So let’s assume a tax rate of 30%. Every individual 18+ has to pay $127,500.00 in taxes. That sends $25,500,000,000 right back to Uncle Sam. But it means that every adult 18+ has $297,500.00 in their pocket. A husband and wife has $595,000.00.

What would you do with $297,500 to $595,000 in your family? Pay off your mortgage – housing crisis solved. Repay college loans – what a great boost to new grads Put away money for college – it’ll be there Save in a bank – create money to loan to entrepreneurs. Buy a new car – create jobs. Invest in the market – capital drives growth. Pay for your parent’s medical insurance – health care improves. Enable Deadbeat Dads to come clean – or else.

Remember, this is for every adult US citizen including the folks who lost their jobs at Lehman Brothers and at other companies cutting back. And of course, for those serving in the armed forces.

If we’re going to re-distribute wealth let’s really do it…instead of trickling out a puny $1,000 ( “vote buy”) economic incentive that is being proposed by one of our presidential candidates

As for AIG – liquidate it. Sell off its parts. Let American General go back to being American General. Sell off the real estate. Let the private sector bargain hunters cut it up and clean it up.

Here’s my rationale: We deserve it and AIG doesn’t. I trust my fellow adult Americans to know how to use the $85bn ‘We Deserve It Dividend’ more than I do the geniuses at AIG or in Washington DC . And remember, The Birk plan only really costs $59.5bn because $25.5bn is returned instantly in taxes to Uncle Sam.

Ahhh…I feel so much better getting that off my chest.