It is hard to believe that anyone, on either side of the Atlantic, could still be under any illusion about the scale of the economic crisis that is upon us. Any remaining doubters, though, would surely have been put right by President Bush's broadcast to the American people on Wednesday night. Here was a tax-cutting President, a Harvard MBA no less, who had come to office preaching the unalloyed benefits of the free market. Yet he spoke in terms that verged on the apocalyptic.
That market which he had once so enthusiastically extolled had, he said, ceased "to function properly". Under normal circumstances, he went on, companies that had made bad decisions should be left to go out of business, "but these are not normal circumstances". Warning of "panic", he said the entire US economy was in danger.
Mr Bush was, of course, arguing a case, and maybe employing just a little hyperbole. He was desperate to persuade a reluctant Congress to accept the $700bn bailout plan formulated by his Treasury Secretary, Henry Paulson. But the fact that a plan of any sort was deemed necessary to restore confidence in US banking, let alone a plan entailing such a vast amount of state spending, represents a complete reversal of pretty much everything Mr Bush and his presidency have stood for in the economic sphere.
If we are not – quite – looking at the collapse of free-market capitalism itself, we are surely contemplating the final agonies of the particular version of it that has evolved over the past 20 years or so in the United States; a version that was to a large extent adopted also in Britain. The combination of easy credit, so-called light-touch regulation and complex financial instruments woven, as it turned out, essentially from air, had paralysed the whole financial system.
Mr Paulson's plan, endorsed by the Federal Reserve, was designed to address the root cause of the problem: the still undetermined amounts of bad credit washing around in the banking system. With nothing else capable of restoring confidence – not the distress sale of several major banks, not the bankruptcy of Lehman Brothers, not the nationalisation or part-nationalisation of two major US mortgage lenders and the insurance giant, AIG – there seemed little alternative to a costly bailout, that would facilitate a return, it was hoped, to sound money.
But two factors thwarted the plan's emergency passage through Congress. The first was US election fever. Everything that happens between September and November of a presidential election year can change, or be changed by, the electoral dynamics. The financial crisis is no exception. Now dominating the campaign, it could arguably benefit either candidate. John McCain could try – as Gordon Brown has tried – to present himself as the steady hand of experience that is needed in such critical times. Barack Obama, on the other hand, has used the classic left-of-centre argument that capitalism, as practised by the Bush Republicans, is discredited and a more statist, more tightly regulated, model is needed.
Even as Mr Paulson presented his bailout plan, a sudden blip in some opinion polls suggested that Mr Obama was starting to win the argument. Enter Mr McCain, with high-flown calls for national unity, announcing a unilateral suspension to campaigning, and calling for the postponement of tonight's televised debate. Did this reflect genuine concern for the survival of the US economy, or was it a ploy to court the worried patriotic vote, wrong-foot his opponent and extricate himself from a debate he felt he might lose? Mr Obama's defensiveness – yes, he would suspend campaigning; no, the debate should go ahead – left the advantage unclear.
The other factor, though, was an admirably robust US Congress, which decided – after some free and frank exchanges with real-live voters – not to be steamrollered into irresponsible spending by a crisis, even one of this patently catastrophic magnitude. Of course, electoral self-interest was at work here, too. All members of the House and one third of senators face contests in November. Nonetheless, the zeal with which many are now representing the interests of hard-pressed Main Street against those, as they see it, of high-rolling Wall Street is impressive. The US economic system may be in meltdown, but the US political system is alive and well.
And a deal, assuming one is eventually done, will show Congress fulfilling both its legislative role and its constitutional function as a check on the executive. Any bailout will have been subject to scrutiny. An injection of some down-home American fair play with a dash of old-fashioned Puritanism will not have come amiss.
Whether the Paulson plan, or anything like it, is the answer will depend on the financiers and the national mood. Seen from afar, though, the process is not without its redeeming features. Mr Bush may have had no choice but to sacrifice ideology to reality, but he announced his U-turn with verve. And America, through its elected representatives, is fiercely debating what should happen next. It makes our own approach seem supine, fatalistic and over-reliant on a questionable cross-party consensus.
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