Understandable explanations for the urgency of the situation have slowly started to emerge from the media, blogosphere, and academia. Here's a good one from David Leonhardt. Pitiful though they may be, they are vastly superior to the explanations of the administration and Congress.
The root of the financial crisis is, as Leonhardt repeats, all about trust. If I'm a bank and you're a bank and I know you have a bunch of bad paper on your books but don't know the amount of it or its value, I'm less likely to lend you money because I can't trust that you'll be in business long enough to pay the loan off. Furthermore, I know that you don't trust me for the same reason, so I hoard cash to try to convince you that I'll be OK. Net result: nobody lends anything.
Hang on here; we're going to whip around now and look at the political system. Let me ease into this:
My first political impulses have always been conservative. I try to temper this conservatism by questioning my assumptions as much as I can and realizing that pragmatism ought to trump ideology every time. This, along with my belief that all forms of government intervention on cultural issues are doomed to failure, is why I think of myself as a moderate.
Now, you won't hear this very often but I'll let you in on a little secret: Conservatives have a little bit of an inferiority complex when it comes to charges that we don't look out for the little guy. Obviously, since we're good people, we're as compassionate as the next person. But we understand that, in terms of populist, gut response, the liberal case for directly taking care of the disadvantaged and opposing the wealthy is much stronger than the conservative case.
This doesn't usually deter us from looking after the big picture. We feel that, unlike the populist and liberal views, you have to think through issues relating to the common weal a bit more deeply than that first visceral reaction. If you're willing to follow the chain of logic further than that first emotional step, you often find that the direct, emotionally appealing policy approach accomplishes exactly the opposite of its intention. We believe, above all, in the law of unintended consequences. This makes us resistant to any new policy. It doesn't mean that we're reactionary; it simply means that we want policy ideas challenged, challenged again, implemented on a small scale before being unleashed at the federal level, and then phased in gradually, constantly looking for those pesky unanticipated side effects.
Conservatism isn't easy and it sure as hell ain't sexy. But conservatism works when you trust that conservative legislators are willing to do the hard work and take the awkward stands that are necessary to make sure that everybody thinks through that second, third, and fourth logical steps.
Now, don't misunderstand me: conservative politicians are every bit as stupid, venal, and self-aggrandizing as liberal politicians. Just as with liberal politicians, you have to be willing to forgive them the unforgivable sin of being political and therefore the scum of the earth. This is an unfortunate side effect of living in a representative democratic republic. But as long as you trust that, on balance, the wisdom of crowds will cause conservative caucuses to act deliberatively, you can withstand the continuous onslaught of righteous indignation coming from the liberal side of the electorate.
But then we have the events of the last three weeks, where not only must you cope with the unbelievable stupidity of the financial actors but you have the conservative legislative caucuses running smack up against the limits of pragmatic reality. At times like this, you expect conservatives to yield to pragmatism, especially when the financial types are the ones sounding the alarm. In the face of populist outrage, you expect conservatives, of all politicians, to be courageous and do the right thing.
They didn't. Here's David Brooks:
And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed. They did the momentarily popular thing, and if the country slides into a deep recession, they will have the time and leisure to watch public opinion shift against them.Just like the financial system, the political system is built on trust. Conservative ideology requires even more trust than liberal ideology. You have to trust that individuals are capable of promoting their own self-interest while still remembering that they're part of a living community. Assuming that the average citizen is incompetent or untrustworthy to take care of himself (cf. the liberal position on health care) causes the whole ideology to collapse. More important, you have to trust that conservative policymakers are, on average, thinking the required three or four steps ahead that are necessary to craft careful, incremental policy.
House Republicans led the way and will get most of the blame. It has been interesting to watch them on their single-minded mission to destroy the Republican Party. Not long ago, they led an anti-immigration crusade that drove away Hispanic support. Then, too, they listened to the loudest and angriest voices in their party, oblivious to the complicated anxieties that lurk in most American minds.
Now they have once again confused talk radio with reality. If this economy slides, they will go down in history as the Smoot-Hawleys of the 21st century. With this vote, they’ve taken responsibility for this economy, and they will be held accountable. The short-term blows will fall on John McCain, the long-term stress on the existence of the G.O.P. as we know it.
I’ve spoken with several House Republicans over the past few days and most admirably believe in free-market principles. What’s sad is that they still think it’s 1984. They still think the biggest threat comes from socialism and Walter Mondale liberalism. They seem not to have noticed how global capital flows have transformed our political economy.
So when a crisis comes along and the conservative caucus screws the pooch, then blames it on partisan politics, a key element of that trust collapses.
Like everybody else, I was disgusted with otherwise intelligent human beings managing to haul the entire economy to the edge of a precipice through a combination of unbridled greed and near-criminal shortsightedness. There's plenty of blame to go around on this and there are obviously some subtle, poorly understood emergent effects in play, but the inescapable fact is that this happened largely on a Republican Congress's watch and wholly on the watch of a Republican administration, complete with what is, now obviously, intentionally lax enforcement. Conservatives are more to blame for this mess than the liberals. Conservatives are responsible for cleaning it up, or at least making sure that the mess doesn't get any bigger.
My disgust has now been transformed into rage. The collapse in my trust of Congress leaves me with no coherent framework for viewing the events other than my emotional reaction to them. Viewed through my emotions, the buzzwords that conservatives use to communicate their positions--buzzwords that usually have a reliable set of well-thought-out ideology lurking behind them--now sound craven at best, ridiculous at worst.
So: Blame accurately assigned to conservatives for the crisis. Lack of trust has eroded away the ideological underpinnings of conservatism. I am only able to react to events at an emotional level due to the loss of trust in the ideology. What does that make me?
It makes me a liberal.
Maybe this is a temporary condition. Maybe the Republican caucus will be able to perform an ideological bailout, and maybe that bailout will extend to the McCain campaign. But as of the day before yesterday, McCain is as much of an empty suit as Obama is, and Obama's empty suit is better communicated, better organized, and has less to do with the current disaster. Right now, Obama has my reluctant vote.
Maybe the Republicans can rehabilitate themselves. But this is time-sensitive. Without courageous, insightful, well-articulated action, the current lack of trust will cascade through conservative thought and utterly discredit it, just as lack of trust threatens to cascade through the financial system and precipitate an economic depression. If things continue on the current course, the Republican Party will be as relevant to the American political process in 2012 as the Whig Party was in 1865.
UPDATE 10/1/08: I took a slightly different stab at this in the comments over here.