Bailout Bill - A History Lesson from the Year 2043

Nov 19, 2043

WASHINGTON DC – It is the year 2043, and my grandson approaches me with a school history project where he is analyzing the infamous Bailout Bill signed into law by President Bush on October 3, 2008. Since "Gramps" was around when the bill was passed, I get interviewed about my thoughts on the bill and the economic climate at the time. My grandson has done a lot of reading, and the history books are full of facts outlining the deteriorating economy, the bank failures and the quick action taken by the U.S. government. Of course, his history book is no longer printed on paper. It's 2043. It's now a thin transparent film with plasma-like capabilities and an Internet connection to read any reference source from the library. It's fun watching the young ones and ever-changing technology.

History books tell us that the Bailout Bill was the last major bill signed into law by President Bush before his eight year term ended. And although he left office as the least popular president according to approval ratings, and left the nation with its largest federal deficit in history at that time (over $10 trillion dollars), it was a bill that passed through the halls of Congress and into the White House very quickly by normal standards. History has also documented very well the steps that lead to the crisis, highlighting investment banks bundling mortgage-backed securities, numerous bank failures, the decline of the dollar and record-high oil prices the summer leading up to the passing of the Bailout Bill. History is about facts… and the facts are documented well.

But it is now 2043. Taxes are higher and my children are paying for the mistakes of my generation. Borrowing against social security and increasing the national debt has finally caught up, and net interest on the debt is no longer in the single digit percentages as measured against government receipts. Thus taxes must be higher to keep the debt in control and to begin to pay off the foreign countries that control the U.S. financially, because we fear these countries could wage an economic war simply by dumping the U.S. bonds they hold.

So, I analyze the research report along with my grandson and I ask a different question of him. What would we be reading in the history books, now 35 years later, if the Bailout Bill was not passed? It’s the history that could-have-been. Would there have been more Washington Mutual sized bank failures? Would there have been more Addie Polks, shooting themselves as sheriff deputies enter their homes to evict them after foreclosure? Or worse yet, would credit markets have frozen to the point where no lending occurred, locking an inter-linked global economy that heads into a tailspin taking years to recover, resembling the Great Depression?

It’s hard to imagine the would-have-been scenarios with my grandson. I reflect back to a point one week before the Bailout Bill was signed when I was in China. China, by the way, now in 2043, equals the U.S. in terms of GDP, but has a significant upper-hand by owning a large portion of the U.S. debt. Back then in 2008, I remark to my grandson that everyone I met with asked about the important U.S. economy. Many joked that the U.S. government was becoming “socialist” by purchasing assets in once privately-held companies. This was hard to argue. The American approach to a free market society was in jeopardy. Although lawmakers pretended it to be a temporary fix and that capitalism didn’t fail – and that the economy simply needed an injection. All because greed on Wall Street went unchecked with new complex securities that regulators did not understand. We learned soon afterwards that the government’s role would expand from the financial sector to health care to education. All were in need of reform after skyrocketing costs questioned the ability of many Americans access to the basics. Government became bigger. Despite a Republican platform message to keep government limited, it increased during President Bush’s term in office. And it continued to increase under a Democrat later when President Obama was elected as the 44th president of the United States.

The closest analogy I could find for a possible alternative scenario, had the Bailout Bill not passed legislation, was the depression era of the 1930s. The global economic crisis of the time had a profound impact that would last many, many decades. It wasn’t only about World War II which was indirectly started as a result of tough times in Germany and Japan, but also consider the political structure of nations that believed that capitalism had failed. They dusted off the works of Karl Marx, and the half-century old Communist Manifesto, which foretold the doom of capitalism. Certainly if he was right, then his other principles for socialism must be true too, right? The Great Depression saw the uprising of different forms of government that would divide the world for many decades until the fall of the Berlin Wall.

In the end, in 2008, capitalism did not fail. But it would never be the same again. The government stepped in. Had they not, who knows what might have happened? The economy took a hit, the U.S. financial system got a big black eye, and the World would no longer be able to look at the American system of democracy as the absolute path for prosperity. It’s ironic that billions, if not trillions of dollars making up the U.S. debt went to funding wars in the Middle East to convince those nations of democracy and free market principles. Or was it really about the oil? It’s 2043 now, and the oil fields in the Middle East are nearly dried up, so if Jenna Bush runs for office she doesn’t have to worry about following her father and her grandfather’s footsteps into Iraq.

Back to my grandson’s research report. We decide to paint the gloomy picture about what would have been. There’s the scenario that capitalism failed after a collapse of the underlying financial system, which led to economic wars and the largest re-shaping of the political map since 1945. This doom-and-gloom scenario makes us feel better. By contrast, the path we chose doesn’t seem nearly as bad. Sure, the U.S. is no longer the lone superpower in the world for it has flattened. We are equals with many of the countries which we once called “emerging markets”. But, it’s not about competition, right? We feel better about the flattening because there are fewer differences in the world, less countries that we now consider third-world, and a common understanding that we all share the same resources. The political structures continue to change and morph into a mono-culture with globalization, but it’s good for the U.S. to acknowledge some of the benefits of socialism; with great examples of universal health care and education from leading countries in these areas. Furthermore, the collective wisdom of highly-educated citizens from around the world has led to some amazing developments. After all, I am reading my grandson’s report on a thin-digital film with WiFi, about the size of what we used to call paper. That’s pretty cool.