That will teach, uh, someone..?
As result of the bill failing to pass the DOW had its single biggest drop in history: a whopping 777 points (I foresee this number being the answer to an IPE question for undergrads 40 years from now*).
One of the big questions which has been an integral part of the story so far - and is going to become a bigger and bigger one as time goes on - is who do we blame for this mess? In big disasters there is often a tendency for some to deride the "blame game" (a term I hate) as unhelpful and besides the point. We're in a disaster; get on with it. For example:
Representative Maxine Waters, a Democrat, said the measure was vital to help financial institutions survive and keep people in their homes. “There’s plenty of blame to go around,” she said, and attaching blame should come later.
However, apportioning blame and responsibility is hugely important for a number of reasons, and correctly locating the source of the problem should be a big part of what happens as soon as the fire is finally (ever?) put out.
Well, somebody is going to be blamed; so we might as well get it right. People apportion blame differently, often according to their levels of education. Following Hurricane Katrina, people at higher levels of sophistication were likely to blame the states, people with lower levels were likely to blame the President (the relevant study is here though is behind a paywall). The point is someone is going to get it either way.
Already the debate is beginning. The generally populist view - and much of the way the that the media is telling this - is that Wall St. got us here though unscrupulous practices and they deserve to suffer for it. Some on the right have (implausibly, in my opinion) argued that much of the fault lies not with Wall St. but with foolish borrowers who should have known better than to take the loans offered. In one instance, I heard one hack argue that banks were forced to give these risky loans due to the "Carter-Clinton" policies (yes, I noticed the 16 year hole in this argument too)which tried to make housing accessible to the less well-off. (Hat tip to Sadly, No! for this nugget and its rebuttal.) Others argue the political establishment is to blame: either for not passing the bailout right now; or for repealing regulatory legislation all the way back when.
So, in the midst of this crisis the "blame game" (ugh) has already begun. For many this is probably simply catharsis. In the middle of a mess it is nice to have a scapegoat for one's woes. Indeed, for many who may genuinely be responsible, shifting the blame may not only be a way of avoiding punishment, but it may be a way of telling themselves that it really isn't their fault at all. Cognitive dissonance studies have shown that when people make morally negative decisions they tell themselves that what they did really wasn't wrong. It's either do that, or admit to yourself that you're piece of nasty work. This second choice has a high psychological cost that many do not want to pay. It is less costly to convince yourself that it truly isn't your fault.
But aside from this motivated element of blame-assignment, there are more practical reasons to determine who or what is to blame.
Obviously, this is a big disaster that we're getting ourselves into and it is worth truly understanding what got us here. This is not just a simple matter of discovering which "facts" are more salient. Facts rarely speak for themselves, and in the social world many "facts" - poverty, the international system, democracy - are not readily apparent at all. Determining what did the analytical leg-work and when can help us better identify the causes of this event, and leave us better equipped to guess when the next one is on the way. (Of course, this wasn't an entire surprise; this crisis has been bubbling for about 18 months and many knew it was only a matter of time.) For me there are two large theoretical questions that must be asked which radically alter the way we assign blame for this crisis.
(A) When did this crisis begin?
For example, if it began with the repeal of the Glass-Steagal act, then our explanation would treat the crash as the final consequence of a process of increasingly risky financial transactions etc. which finally culminated in Congress allowing it all to go to hell. However, if we say that the crisis began last week, then Congress and its decisions feature prominently in the narrative and today's failure is the primary cause of the disaster. So locating the temporal precedence is important in determining the causal story.
(B) What caused the crisis?
This is the more critical question for us to understand as it means that in future we might spot the "thing" if it pops up again. It also lets us assign blame properly. Although I am no IPE expert (and therefore do not have an especially compelling explanation of my own) what we think "exists" is at the centre of this explanation. Bear with me as I take a small detour into theoretical wankese but what I am really talking about here is ontology - or our theory of "being". Do we think that there are broad social forces which have pushed this outcome along, for example? An argument that "capitalism" or the "market" is to blame means that we believe - at least for the purposes of analysis - that there is a structure bigger than the individuals involved which is forcing along the outcome. Anyone who has read War and Peace (a set which does not include me) might recognise such an argument. Tolstoy basically argues that "History" drives the actors on, and that individuals do not, in of themselves, have any real effect. Alternatively, if we don't believe in social forces or structure we may think that "CEOs, and their lobbyists in Congress" or "individual homeowners" are responsible. By prioritizing the individual and saying that they are the cause of the outcome we saying that they are therefore ultimately to blame. As Colin Wight points out many political arguments shift ontologies depending on whether the politician is trying to avoid blame (they say its the system) or assign it (they say its another politician or whoever).
This structure-agent problem dominates certain (sub)disciplines in social science - such as international relations - and the two concepts do not necessarily have to be mutually exclusive, although often they are (classical economists put all the explanation in the market, for example). At times, one might privilege structure over agency and vice versa.
My two-cents explanation is that at one time, the CEOs etc. did exercise their power and changed the system to their favour by having Glass-Steagal repealed. This individual action helped to alter the fundamental structure of the financial system, which in turn became the primary cause of outcomes from then on. In other words, I blame the "financial system" for the last 18 months of the crisis (brokers were just doing what brokers do) but ultimately I blame the individual private actors and politicians for setting the ball in motion back in 1999. I should note that this (half-baked) argument is heavily influenced by this very good book.
This populist conclusion is not out of the mainstream to say the least. As I will discuss in my next blog, however, the backlash against Wall St. - while cathartic - could usher in some nasty politics of its own.
*Yes I know it's 778 in the story, but that's only because they rounded up.