Fear of anything that smacks of socialism is going to drive us into another Great Depression

When the Soviet Union collapsed and the Berlin Wall came down, conventional wisdom called it a triumph of capitalism over socialism, and proof that socialism was by its very nature unworkable.

Tell that to Sweden, or to any Western European nation that has things like universal health care that here in this country we respond to by holding up the garlic and crosses and screaming "Socialism!!" Perhaps it's because most of the people who run our financial system and our government are either old Cold Warriors or remember the air raid drills of the 1960's, in which as schoolchildren, we would assemble in hallways and stand facing the wall with our arms "protecting" our heads from nuclear blast. Or perhaps it's our unfortunate tendency towards black-and-white thinking, in which all that is not mandatory must therefore be regarded as forbidden unless we make it mandatory (see also: organized school prayer), all that is not forbidden must therefore be regarded as mandatory unless we make it forbidden (see also: abortion); and every aspect of capitalism must always be regarded as superior to every aspect of socialism.

If free-market capitalism involves the privatization of profit and the socialization of risk in a rigged system, and if it means a Saudi-owned bank receiving a federal bailout can still put its name on a baseball stadium and send its former CEO, his wife, and his adult children, on an expensive vacation, perhaps we need to look at leavening this doctrine with a little good old fashioned socialism that benefits more than just bank executives.

This isn't a question of extolling the virtues of socialism over capitalism as an overall system. But our fear of even mentioning policies that might spread the wealth along with the risk cause such a knee jerk response, as if Americans are all like Fred Thompson, still talking about containing Soviet expansionism. This kind of knee-jerk thinking has brought us a health care system that's collapsing even if rich people and politicians aren't yet aware of it because THEIR health coverage and care is just fine, thank you very much. This refusal to acknowledge that free market capitalism has its limitations and socialism has its virtues gave us AIG and Citigroup and Bank of America and John Thain and Richard Fuld and Bernie Madoff. This refusal allowed a moron like Sarah Palin to whip her minions into a frenzy simply by calling Barack Obama a socialist.

But if refusing to even consider anything that has even the faint whiff of socialism means that Americans are going to be on the hook for trillions of dollars while getting nothing -- not even jobs -- in return, then I think it's time to admit that being hamstrung by continuing to want to fight the Cold War is as counterproductive as fighting the Civil War in perpetuity, and that continuing to shovel money into the pockets of those who are exploiting that fear of socialism is a triumph of putting rigid ideology over the future of this country.

Krugman:

“We have a financial system that is run by private shareholders, managed by private institutions, and we’d like to do our best to preserve that system,” says Timothy Geithner, the Treasury secretary — as he prepares to put taxpayers on the hook for that system’s immense losses.

Meanwhile, a Washington Post report based on administration sources says that Mr. Geithner and Lawrence Summers, President Obama’s top economic adviser, “think governments make poor bank managers” — as opposed, presumably, to the private-sector geniuses who managed to lose more than a trillion dollars in the space of a few years.

And this prejudice in favor of private control, even when the government is putting up all the money, seems to be warping the administration’s response to the financial crisis.

Now, something must be done to shore up the financial system. The chaos after Lehman Brothers failed showed that letting major financial institutions collapse can be very bad for the economy’s health. And a number of major institutions are dangerously close to the edge.

So banks need more capital. In normal times, banks raise capital by selling stock to private investors, who receive a share in the bank’s ownership in return. You might think, then, that if banks currently can’t or won’t raise enough capital from private investors, the government should do what a private investor would: provide capital in return for partial ownership.

But bank stocks are worth so little these days — Citigroup and Bank of America have a combined market value of only $52 billion — that the ownership wouldn’t be partial: pumping in enough taxpayer money to make the banks sound would, in effect, turn them into publicly owned enterprises.

My response to this prospect is: so? If taxpayers are footing the bill for rescuing the banks, why shouldn’t they get ownership, at least until private buyers can be found? But the Obama administration appears to be tying itself in knots to avoid this outcome.

If news reports are right, the bank rescue plan will contain two main elements: government purchases of some troubled bank assets and guarantees against losses on other assets. The guarantees would represent a big gift to bank stockholders; the purchases might not, if the price was fair — but prices would, The Financial Times reports, probably be based on “valuation models” rather than market prices, suggesting that the government would be making a big gift here, too.

And in return for what is likely to be a huge subsidy to stockholders, taxpayers will get, well, nothing.

I suppose that when you put Geithner and Summers in charge, this is what you're going to get. But I fail to see how a huge bailout with zero accountability is going to solve anything, other than where Sandy Weill is going to go for his next company-paid vacation.