DMACC economics prof says failed bailout ‘great day for democracy’

Dr. Mark Maggio

Des Moines Area Community College professor Mark Maggio says desperate Wall Streeters looking for a $700 billion bailout recall the story of the boy who cried wolf.

The bailout package, pounded from the political left and right, failed in Congress Monday.

“I thought yesterday was a great day for American democracy,” says Maggio, who teaches economics at several DMACC campuses around the state.

Maggio said Wall Street elites, who he believes have spent careers talking down to Iowans and others, should absorb the pain of their own poor decisions. He thinks their threats about economic calamity in the form of predicted depressions and recessions ring hollow.

“It’s not going to be as bad as the little boy who cried wolf said,” Maggio said. “When people cry wolf I think it spooks people.”

Maggio said that when the question of the bailout is put to regular Americans, outside the corridors of congressional leadership offices and Wall Street boards, the reaction is outright hostility.

“I’ve never heard such unanimity of opinion,” Maggio said.

In fact, Maggio said, this watershed financial question is a rare time where liberals and conservatives are both correct with their reasons for opposing the bailout.

In Iowa, Democratic Congressman Bruce Braley opposed the package because he thinks it’s a life preserver being thrown to money men who have fallen off their financial yachts. Meanwhile, U.S. Rep. Steve King, a western Iowa conservative, blasted the bailout as fundamentally at odds with American free-market philosophy.

Maggio agrees with both lines of reasoning.

“It is a rare day,” Maggio said.

Some financial analysts argue that issues of morality should not be injected into the market, that actual outcome is all that matters and people shouldn’t be so concerned about fairness.

“That’s an old economics philosophy,” Maggio said. “People like me are moving away from that.”

Maggio said Americans see what is really going on with Wall Street.

“They privatized the gain and now they want to socialize the losses,” he said.

Maggio said it is not a radical idea to do nothing for the troubled companies now seeking a taxpayer rescue.
He believes the credit crunch may have a needed punishing effect on large financial institutions that carried much too high debt-to-asset ratios, and sought easy paper wealth associated with poorly backed mortgages.

“We’ve been living high and wild,” he said.

Maggio says both presidential candidates, U.S. Sens. Barack Obama, D-Ill., and John McCain, R-Ariz., have been but bit actors in the debate over the bailout.

“I’m going to argue that both have been insignificant players,” Maggio said.

In terms of more localized impact, Maggio said community banks still need to make profits and will be able to loan money to people for cars and homes.

“The bank is still going to want to make money,” he said.

And average investors who are seeing their mutual fund portfolios and retirements dive should hold their hands, Maggio said.

“It’s only logical to do nothing because if you get out now, you get out at the bottom,” Maggio said.

He said farmland will remain a strong asset.

“I see nothing to indicate that that is going to go down,” Maggio said.

In the end, Maggio said, a collaboration of wealthy Wall Streeter and congressional leaders of both parties and President Bush, have falsely portrayed the bailout of troubled companies as a bulwark against financial Armageddon.

“That’s an essentially strong characteristic of America that we don’t do what out leaders tell us to,” Maggio said.