Only the $700 Billion "Garbage Pit" Can Bail Us All Out

The other day CM Emily Evans wrote her quick and dirty take on the mess in the mortgage market. The Nation's Mark Sumner gives a better, more through and historical account of the rise and fall of the banking deregulation (how can CM Evans refer to Bill Clinton but not to the father of banking deregulation and John McCain's economic adviser, Phil Gramm?) that brought us to the point where we are beyond the simple question of loans made to people that should never have been made.

Sumner describes how the vacuous market of "credit default swaps" between lenders surpassed the GDP of the entire world, and he maintains that once the bottom fell out the lenders had no safety net because they were the ones who kept multiplying more risk (blaming the poor and minorities for predatory lending in what George W. Bush promoted as a deregulated "ownership society" is ridiculous). All of the Great Depression regulations that would have stopped the madness had been stripped away by Gramm and signed into law by Clinton.

And the only solution taxpayers are told they have now is misnamed a "bail out" (CM Evans is correct about that). According to Sumner, the legislation will be more like a taxpayer funded "garbage pit" where lenders who deal in default risk can dump the bothersome remnants of their ill-fated swaps. The White House and the Congress will use our money to cover and bury those problems, venting gases when necessary. Maybe CM Evans and others are correct that passing this legislation is more about saving Main Street than it is about saving Wall Street. But passing it is also going to be extending Main Street through the lending industry's garbage pit. And who ultimately is going to be accountable for cleaning the toxins up?