Dark Star

What now? If nothing passes and a crash comes, Republicans risk getting tagged for the blame for a long time to come. The vote is a blow to John McCain, who had so dramatically “suspended” his campaign to return to DC and broker a deal. His campaign had explained his role as bringing to the table and coaxing along House Republicans, whose revolt now makes him look ineffectual.

Yet the bill will likely be revived — and deserves to be.

The phrase the “real” economy has become a hallmark of this debate, implicitly contrasted with the “fake” economy of the financial world. McCain talks of the honest laboring man as the strength of America. No doubt he is, but he wants to buy a house (which requires a mortgage), not pay for everything with cash (which requires credit cards), have a job (which requires a business that is very likely dependent on loans) and buy big-ticket consumer items he can’t pay for upfront (which requires car loans, etc.). Freeze up all those sources of credit, and economic life as we know it ends.

Already, the panic has sent investors to the safety of Treasury bills, leaving less capital for consumers and businesses. Few realize how much businesses rely on short-term loans for routine operations like meeting payroll, and how that most characteristic American entrepreneurial figure — the guy with a bright idea he works out in his garage — depends on investment and loans.

Conservatives who make so much of their knowledge of the markets would ordinarily be the ones to point this out, but they have a blind spot for the market’s failures. The financial system is subject to periodic panics that, if left to work their course, will wreak economic havoc out of all proportion to reason. They take down good institutions along with the bad.

If it works, the Paulson plan’s most worthy accomplishment will be saving innocent bystanders from the wildly swinging tail of the blind and panicked financial beast.

The financial crisis is so disturbing exactly because finance is so centrally important. Our sophisticated financial system has been one of the glories of Anglo-American capitalism. “The Bankers, accountants, investors, traders, and corporate officers whose joint efforts brought this system forth have changed the world far more profoundly than virtually any of their contemporaries,” writes Walter Russell Mead in his book God and Gold: Britain, America, and the Making of the Modern World.

Without this system, Britain and America wouldn’t have risen to global pre-eminence, and consumer capitalism as we know it — dependent on credit — wouldn’t exist. We may be about to find out what happens when it is rocked to its foundations.

Lowery is a Conservative and regular contributor to NRO. I have a lot of respect for him. His advocacy for this bailout is a great example of he argument that most Conservatives who are in favor of the bailout are using.

The problem I have with this argument - and the bailout in general - is that nothing at all is done to prevent it from happening again and again. Is the answer to saving "our sophisticated financial system," to change it so fundamentally by nationalizing huge swaths of it and doing noting to counter the underlying problems -- which are disastrous government interventions in the market?

The answer to socialist footholds in our free market economy is - more socialism? Does that sound right? These are Conservatives saying this?

Something needs to be done -- maybe even a $700 Billion bailout... but attached to that bill should be at least a dissolving of the two GSEs that got us here. Or at least an acknowledgement by Conservative advocates that that would be desirable.

After all, what's "rocking us to the core," isn't the fact that the bailout didn't pass, it's that the government decided long ago to nationalize the risk found in Fannie Mae and Freddie Mac and then forced banks to use them via CRA.