CEPR - Statement on Congressional Approval of Bailout

By Dean Baker at CEPR.

This is the first time in the history of the United States that the president has sought to provoke a financial panic to get legislation through Congress. [Emphasis added.] While this has proven to be a successful political strategy, it marks yet another low point in American politics.

It was incredibly irresponsible for President Bush to tell the American people on national television that the country could be facing another Great Depression. By contrast, when we actually were in the Great Depression, President Roosevelt said that, 'we have nothing to fear, but fear itself.'

It was even more irresponsible for him to seize on the decline in the stock market five hours later as evidence that his bailout was needed for the economy. President Bush must surely understand, as all economists know, that the daily swings in the stock market are driven by mass psychology and have almost nothing to do with the underlying strength in the economy.

The scare tactics of President Bush, Secretary Paulson and Federal Reserve Board Chairman Bernanke created sufficient panic, so that by the time of the vote, much of the public believed that the defeat of the bailout may actually have had serious consequences for the economy. Millions of people have changed their behavior because of this fear, with many pulling money out of bank and money market accounts, and in other ways adjusting their financial plans.

This effort to promote panic is especially striking since the country's dire economic situation is almost entirely the result of the Bush Administration's policy failures. First and foremost, the decision of Secretary Paulson and Chairman Bernanke (and previously Alan Greenspan) to ignore the housing bubble, allowed for the growth of an $8 trillion bubble, which is now collapsing.