Tuesday, October 14, 2008

Think Global, Act National

The latest White House response to the continuing financial crisis is the direct investment in our nation's banks by the federal government. Secretary Paulson's statement announcing this new step reads like the forced apology of a child to its sibling after some serious arm twisting by Mom and Dad. I don't think he literally clenched his teeth during the entire announcement, but it is fair to say it was characterized by a hostility that was only thinly veiled.

I wouldn't presume to know the Secretary's personal feelings toward the move beyond those he made explicit, but it wouldn't be unreasonable to surmise that at least some portion of the administration's resentment toward this step is due to the reaction it will generate in Europe. Direct government investment in banks was Europe's answer to the financial crisis and one that they announced and then quickly began to implement. Today's announcement signals that the New World is following Old Europe's lead and parties on both sides of the Atlantic seem to agree that we had no choice.

As Europe moved toward propping up their banking sector and guaranteeing more deposits, the US was left with no choice but to keep pace or risk the flight of capital. Just as the perceived Missile Gap of the Cold War was unacceptable to US policymakers, we couldn't have allowed a Bank Confidence Gap to force investors to leave the US markets for what was perceived as the safer European sector.

After 7 1/2 years of thumbing its nose at Europe and making unilateral action the basis of our foreign policy, the Europeans have forced the Bush administration to act multilaterally. And for that, undoubtedly, they will enjoy no small amount of glee. This, of course, will be dampened by the weight of their own financial crises, but it will be real nonetheless.

Taking pleasure in the pain of others is known as schadenfreude. This was in evidence not long ago as the crisis began to seriously affect the US, but hadn't yet hit Europe. Several European governments touted their stricter domestic regulatory scheme as a defense against what was ailing the US. As it happened, their domestic regulation didn't prevent European banks from making the same bad bets on US mortgages that our institutions did. In short order the Europeans were facing the same realities that we were and the schadenfreude largely vanished. The US now aping the European response to the crisis should go a long way toward bringing this back.

It's probably only cold comfort for the President, but today he is able to engage in at least a little bit of schadenfreude of his own. He signed into law new legislation that creates an intellectual property czar and aims to help stop the piracy of music and movies among other things. This means the President Hollywood Loves To Hate is making it the law of the land that we help every celebrity from the A to Z list collect royalties from their latest cinematic achievement (be it dubious or Oscar-worthy, or both). Since our tax dollars will be going to help stop a DVD piracy ring in China from flooding the market with illegal copies of Oceans 24 or Sister Act 7, George Clooney and Whoopi Goldberg can spend all their time complaining about the government. I think the least Barbara Streisand could do would be to hold a fundraiser for the Geroge W. Bush Presidential Library. Well Babs, how 'bout it?

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