Madame Defarge, Call Your Wine Shop

E. J. Dionne, Jr. hopes populist outrage over the AIG bonuses and other corporate welfare schemes will lead to better public policy -- and not, one hopes, bonus recipients having to continue to worry about their and their families' safety. The fiercely eloquent anonymous poster at "Body Parts" wonders if Congress's probably unconstitutional confiscation of the bonuses could be seen as affirming vigilantism.

It Was A Bad Day In Bedford Falls

A chilling post at "Body Parts":

According to Rep. Paul Kanjorski, D. Pennsylvania, 11th District,in a TV interview, on September 15, 2008, Thursday, late in the morning, an electronic run on the banks began and was noticed by the Federal Reserve. The Federal Reserve was unable to stop it with emergency loans to banks; the run went up to $550 billion in almost two hours. To stop it, the Fed guaranteed depositor accounts up to $250,000; that at least apparently stopped it. Paulson went to Congress and said, if the run had not been stopped, that up to $3 trillion would have been withdrawn by the end of the day and the US banking system would have collapsed. Kanjorski heard him say it. If the banking system had collapsed, the economy and hence the political system would have collapsed (Kanjorski stated, not indicating whether it was his own, or Paulson's, inference from the situation).

Who was making an electronic run on the banks? To say that a $250k guarantee stopped the run, implies that the run was by small depositors and not large depositors and, probably, not foreign depositors. Was that the case? Or was the run some other kind of financial transaction rather than withdrawal of cash from accounts? The Fed knows. The Treasurery knows. The Bush and Obama administrations know. Congress knows. But we don't know. Why don't we know?

Applying vs. Manufacturing Band Aids

Body Parts:

The New Deal never ended the Great Depression, though it prevented the collapse from spreading like a contagion beyond its 1933 limits. That needs to be understood. Government welfare saved lives by preventing starvation, e.g., but government welfare did not bring prosperity. The economy began to rebound when war broke out in Europe, creating a market for American military manufacturers--ships, airplanes, tanks, guns, ammunition, clothes, food. Britain, the Soviet Union, France, and China began to buy American weapons and munitions through Lend-Lease. When the US entered the war in 1942, the American economy was unthrottled and prosperity returned (though consumption was restrained by defense policy limits on consumer goods). It was not that war itself brought prosperity; it was the unleashing of the economy. The war required that as much food and goods be produced as Americans could produce by working 24/7. It was agricultural and industrial productivity that made the nation prosperous. That is the lesson for today and a lesson that Obama and his economic advisors need to learn.