The Price of Congress' Crazy Rage

This has been a bad week for American leadership, and next week could be worse. In trying to calm the country, Barack Obama made one joke too many while lawmakers in Washington spent their time acting out the worst stereotypes of politicians as fools, cowards and knaves.

"Congress," writes New York Times business columnist Joe Nocera, "with its howls of rage, its chaotic, episodic reaction to the crisis, and its shameless playing to the crowds, is out of control. This week, the body politic ran off the rails.

"There are times when anger is cathartic. There are other times when anger makes a bad situation worse. 'We need to stop committing economic arson,' Bert Ely, a banking consultant, said to me this week. That is what Congress committed: economic arson."

The scorched earth from that diversion now litters the battlefield of next week's crucial fight over how to clean out toxic assets from the paralyzed banking system. But how can there be a rational discussion of the Administration's plan to partner with private investors after all this madness? How do people in Wall Street now feel about making deals with a government held hostage by lunatic lawmakers?

When Treasury Secretary Tim Geithner unveils his plan, there will be serious doubts, some of which are surfacing beforehand. Paul Krugman predicts:

"In effect, Treasury will be creating--deliberately!--the functional equivalent of Texas S&Ls in the 1980s: financial operations with very little capital but lots of government-guaranteed liabilities. For the private investors, this is an open invitation to play heads I win, tails the taxpayers lose. So sure, these investors will be ready to pay high prices for toxic waste. After all, the stuff might be worth something; and if it isn’t, that’s someone else’s problem...

"This plan will produce big gains for banks that didn’t actually need any help; it will, however, do little to reassure the public about banks that are seriously undercapitalized. And...when the plan fails, as it almost surely will, the administration will have shot its bolt: it won’t be able to come back to Congress for a plan that might actually work."

That argument against Geithner's proposal deserves serious discussion. But in the face of a Congress still slavering from its fit of AIG bonus hysteria, with whom?