What now?
September 29, 2008, 1:54 pm
Posted by David Gibson
The bailout/rescue package has gone down in flames. May be resuscitated later in the week. But the House vote wasn’t close, and no one wants to be seen taking responsibility for what may be a turkey–or a lifeline.
So what now? Will a broad stock market fall sober everyone up? Or will a modest fall make folks think that the package wasn’t necessary after all and things will sort themselves out? I thought the amendments to the package were pretty good, but I’m out of my depth here. My sense was that, however distasteful, this was one of those moments when the nation and leaders had to make a show of support in the system and the institutions. Otherwise, it will rain on the just and the unjust.
Ideas?
I think House members were leery of supporting a bill that still socked it to ordinary Americans (some of whom are guilty of greed themselves), while still bailing out institutions that might be better left to go under.
I think the nature of the crisis has not been well explained to the American people. Heaven knows, I don’t have a deep understanding of it myself, but I do understand that the Paulson plan wasn’t simply a “bailout” of Wall Street firms that really just deserve to go bankrupt, whereupon only greedy Wall Street types will suffer.
Nor is it a matter of dividing $750 billion dollars by the population of the Unites States and saying every man, woman, and child is going to be paying $2500 in taxes to finance the bailout.
I don’t know whether the Paulson plan, as modified by the House and Senate, was the best plan that could be come up with, but I know that the overwhelming opposition of constituents urging congress to vote no was based on inadequate knowledge of what is at stake and what is being proposed.
Perhaps along the same lines as David N.’s thoughts: this whole process has brought to light an interesting (at least, interesting to me) aspect of American federalism: decisions that have national and global repercussions are made by politicians answerable, not to the nation or the globe, but to a highly localized constituency.
Whether the tension tha results from this misalignment is a strength of a weakness of the American system, I can’t say.
I do not know whether the American public is uniformed, ill-formed, or simply fed up … but I do know that Nancy Pelosi must be stupid, iunsane, or just insanely partisan: she apparently made an incindiary speech just before the vote, trying to score some political points by rubbing the Republicans’ noses in the fact that the economy was tanking under Bush: http://www.breitbart.tv/html/184803.html
And to think that she is just two heartbeats away from the presidency–now THAT’s scary!
Imagine if you could not use credit cards to fund short or medium term needs, whether it’s your groceries or your water heater. You could carry cash around for the former, most likely, but it would be a challenge to go without a water heater for the 60 days it took to save up for it. That’s the equivalent of what businesses are facing, for everything from their payroll, to buying inventory for the Christmas season.
Basically, because of uncertainty about the value of what they own and their need to reserve more and more as losses become more concrete, banks (and everything that acts like a bank) are hoarding money and foregoing the provision of even short term credit to good risks. It’s not something you “see” unless you are actively looking for it or participating in an affected business.
If I were the Dems, I would see this as an opportunity to pursue alternatives that are more palatable to them, whether that means looking at the Swedish model more seriously, or giving greater protections to taxpayers and homeowners, or both.
I invite anyone better more learned in economics than I am to please answer this question: Now that Citigroup is purchasing Wachovia, is there a possibility that private companies can adequately stabilize the possible meltdown? I refer back to when B of A was asked by the feds to step in and control Countrywide’s bleeding. Is there a manner in which this problem can be handled more by the banks themselves without such a hefty public price tag?
My brother priests closer to my hometown (Charlotte) than I am now are going to be doing some serious grief counseling during the next few weeks on behalf of the many parishioners who will be laid off from their jobs by their new owners. It could have been worse, I suppose. Pray that those who lose their jobs receive both spiritual and fiscal support.
I do not know whether the American public is uniformed, ill-formed, or simply fed up … but I do know that Nancy Pelosi must be stupid, iunsane, or just insanely partisan: she apparently made an incindiary speech just before the vote, trying to score some political points by rubbing the Republicans’ noses in the fact that the economy was tanking under Bush
Isn’t the economy tanking under Bush??? And aren’t the Republicans who claim to have felt wounded by Pelosi’s partisanship refusing to support Bush? If they’re so sensitive about Bush, why don’t they vote the way he has begged them to? It is the Democrats who are supporting Bush here in much larger numbers than the Republicans.
Where is John McCain, by the way?
Here’s an interesting take on the Republicans’ blaming Pelosi for the vote:
http://thephoenix.com/BLOGS/talkingpolitics/archive/2008/09/29/pelosi-gop-and-barney-frank.aspx
Any electorate that could elect george w bush to a second term and are 50% inclined to elect his duplicate in 2008, deserves to have 33% of its men standing in breadlines. Unfortunately those men have starving children who , as uaual pay the piper w/o calling the tune. I’m glad I’m old and rich.
Perhaps the shock of the vote will cause legislators to become serious about a bipartisan solution. Ordinarily, I wouldn’t think that given the gamesmanship that goes on in Washington, but it’s possible there is now a perfect storm of circumstances that will force compromise. As much as many people (including me) are loathe to bail out the greedy capitalists who caused this problem, a sliding stock market and credit crunch could reach a critical psychological mass that makes stabilizing the economy by a bail out more attractive to Main Streeters like us than getting a pund of flesh from the culprits who caused the mess. A truly bipartisan effort would also make sharing the political pain more bearable. The entire House, and one-third of the Senate, is up for re-election in just five weeks, and there must be many legislators eager to get back to their home turf. It will be much easier dealing with angry constituents if they can say the people on the other side of the aisle were also in on the bail out. For a politician, it’s good to have deflection in the campaign quiver.
That should be “pound of flesh.”
“Pund of Flesh” is a good name for a rock group. (Or maybe not.)
David,
Aren’t the Democrats supposed to be the self-described party of “realists”? They–and especially Pelosi–acted foolishly and irresponsibly IF their goal was to actually pass the bailout bill. IF their goal was to taunt the GOP and thereby undo the bipartisan accord that had been built around the bill–in hopes that the continuing bad economy will continue to help them electroally–then they succeeded.
But the key question is not why some Republicans–many of whom never liked the idea of a federal bailout to begin with–ultimately voted against it. Instead, we must wonder why did so many Democrats vote against the bill? The Democrats hold a majority in the House, and that’s all that was needed to pass the bailout. There is no filibuster, as in the Senate. There wa snoi need for a super-majority. All it took was 50-percent-plus-one. Instead, enough Democrats sided with the GOP against the bailout to sink it. Nice leadership there, Nancy!
While I understand that this isn’t a “bailout,” and that the revised measure allowed Congress to dole out the money in increments rather than all at once, it remained a gamble in two ways:
1. We don’t know if $700 billion is enough, nor where requests for assistance might end (remember the auto companies are in the wings asking for $50 billion in loans to make cars that are less reliant on fossil fuels).
2. We don’t know if the market will ever be strong enough to allow taxpayers to recoup this “investment,” much less with interest.
It’s probably worth noting that, Paulson and Bernanke aside, there was considerable difference of opinion among economists about the measure. Enough to make me feel that the whole thing was really pretty much a crap shoot.
What I think has muddled the waters is the issue of big salaries for corporate CEOs. People really resent bailing out companies when the heads of those companies mismanaged things, but still got to take home a yearly compensation package that could run a village like mine for nearly a decade.
Withholding the bailout became mixed up in people’s minds as a way they could punish the “bad guys,” and I’m not sure it’s all that simple.
Prayers for Fr. Shawn’s parishioners. Prayers for us all!
We really do not know HOW urgent the plan is it. Reputable people are voicing doubts and it is certain that the bailout will save many very comfortable people. In a sense financiers are worse than hierarchs in the church. They do not speak clearly and demand all on faith.
The urgency may be in question. There is a lesson (lessons) here somewhere.
Robert,
This is what I see, putting aside finger pointing about how the economy got into this mess in the first place. George Bush, and Bush appointees Henry Paulson and Ben Bernanke proposed a plan. Extensive bipartisan negotiations took place. Democrats voted heavily in favor of the plan (140 yes, 95 no), and Republicans voted heavily against it (133 no, 65 yes). And you are criticizing the Democratic leadership for the failure? What about President Bush? What about John McCain? What about David Boehner? What about Henry Paulson? What about Ben Bernanke? What about John McCain, who was taking credit for the compromise shortly before it failed?
The Democrats support the president in far greater numbers than the Republicans, and you blame the Democrats for not mustering the votes to pass the bill without Republican support?
As I understand it, the Constitution does not permit congressional representation/membership in any oversight committee(s). Therefore, as proposed in the bill just defeated, oversight would have essentially remained in the hands of … (drumroll time) appointees of Bush. Now THAT should have made us all very comfortable! Until the oversight function can be constructed in such a way that the taxpayer can feel comfortable that the function is designed to protect them, and not private investors, politicians, corporate executives, etc., then whatever the next proposal is will still smell like last week’s limburger.
In Europe when these financial institutions fail, the government simply steps in and takes possession of the failed entity. New management is put in place and necessary backing is provided. It seems to work. But of course, why should WE learn from the (sniff) Europeans!
I spent part of my afternoon looking through “The World is Curved:Hidden Dangers to the Global Economy,” by David Smick. There is lots to recommend in the book, including the identification of many historical parallels to the current situation. One of the points made by Smick is that lots of people in the United States distrust financial capitalism because they have no investment, literally and figuratively, in it. Because of this distrust, they are inclined to be more in favor of “punishing” those who most immediately benefit from financial capitalism. Smick thinks most of these punishments would be a bad idea. Two of his proposals for increasing public support for financial capitalism would, I think, be rather interesting to readers of dotComm. First, he supports creating savings funds for every child born in the United States. The funds would begin at $1,000 a piece, paid for by the federal government, and might also include a matching component that would increase the federal contribution. This is not the first time I have heard policy makers suggest such funds. An interesting version of this idea added the qualifier that the funds could not be accessed until after graduation from high school, thus creating a rather significant (thanks to compound interest) incentive to not drop out. Smick’s second proposal is the elimination or reduction of capital gains taxes on investments made by low and moderate income households. Again, the idea is to get the nonrich to buy into finance capitalism. Some might find these notions akin to crack and heroine dealers giving out free samples, but I find them rather interesting (especially coming from a pro-finance Republican). I also think that well meaning souls like Fr. Martin and Rev. Wallis are not talking about such options, not considering how to promote finance capitalism morally, but rather only how to constrain its worst facets. In the course of such moralism, they only confirm the suspicions of many that finance capitalism is illegitimate.
As Smick and others note, the rubber really hits the road on this issue when considering the coming demographics of aging and growing populations and what kind of economy will be necessary to support such demographic shifts. Now is a very bad time to allow an extended period of economic decline.
Okay, that is not how “Europe” works. “Europe” is not a country. The most relevant comparison is to Sweden in the early 90s (I believe), and it did not do what Jimmy said it did — it did take equity positions after its banking system melted down, but it was far more complicated than that. And, indeed, the US did exactly what Jimmy Mac is suggesting with insolvent savings and loans in the late 80s.
There are real differences between the s&l flameout and the current crisis. The current crisis isn’t so much that institutions are insolvent, though some surely are, it’s that even solvent institutions feel the need to hold onto all their cash reserves so that they do not become insolvent because of the embedded uncertainty they feel about many of the assets that they are holding. For these institutions there is absolutely no basis or reason for the USG taking them over.
The issue is liquidity. Imagine fish without water. Credit is water. Businesses are little fishies. What we have is an evaporating pond. The issue is, do we pump water from above (what Paulson wants to do), below (bail out homowners instead), or just wait to see if it rains next week?
If we trusted the meteorologist a little bit more, and if he hadn’t gotten into the habit of predicting catastrophic storms based on not much more than nothing, in the past, this would be a whole lot easier.
However, one thing to remember is that the meteorologist has assistants, one of whom is a Wall Street insider, and one of whom is the nation’s foremost expert on Great Depression economics.
What you will not have, ever, no matter what does or does not happen, is certainty as to outcome of what would have happened had different actions been taken.
Why would House leadership allow the bill to be put to a vote? Did they miscount their votes? Is this all a game of “chicken” so they can blame one another on the campaign stump?
I think Barbara is right about the emphasis on credit. If you’ve seen the “John Adams” mini-series that was on HBO, the same point was made clear in a scene where the actors playing Alexander Hamilton and Thomas Jefferson argue during a cabinet meeting about the role of economics in the fledgling democracy. Jefferson, as most people know, was a strong proponent of a decentralized, self-sufficient agrarian society. Hamilton argues that the only way the U.S. will grow into a formidable power with a vibrant economy is to take on debt, and lots of it, by acquiring large amounts of credit. I’m not an economist, and that seems counterintuitive to me, but even I can recognize that liquidity is essential.
David Nickol said: “Democrats voted heavily in favor of the plan (140 yes, 95 no), and Republicans voted heavily against it (133 no, 65 yes). And you are criticizing the Democratic leadership for the failure? What about President Bush? What about John McCain? What about David Boehner?”
Based on the vote tallies you gave above, the percentage of Republicans who voted for the measure was 67% and 59% for the Democrats. I don’t think saying that the Democrats voted “heavily” in favor of the bill is appropriate. Also, the Minority Leader’s name is Rep. John Boehner from the 8th District of OH, I think that is who you were referring to by “David Boehner”. Where I disagree with Robert Reid is that the “blame”, to the extent there is any, should be laid at the feet of the Majority Whip, Rep. Jim Clyburn. I mean, Speaker Pelosi is holding the most critical vote of her Speakership and her whip can’t even count the votes. Shame on Rep. Clyburn – it boarders on legislative malpractice.
MAT, you need to check your math.
That would be:
Dems voting yes = 140/235 = 59%.
Reps voting yes = 65/198 = 33%.
Barbara: I stand corrected – I read the 133 as yeas.
Also, the Minority Leader’s name is Rep. John Boehner from the 8th District of OH, I think that is who you were referring to by “David Boehner”.
MAT,
Yes, thanks for pointing that out. I meant John Boehner.
“This is the time to buy stocks. This is the time to recall the words of the late J. P. Morgan… that any man who is bearish on America will go broke. Within a few days there is likely to be a bear panic rather than a bull panic. Many of the low prices as a result of this hysterical selling are not likely to be reached again in many years.”
- R. W. McNeel, market analyst, as quoted in the New York Herald Tribune, October 30, 1929
We could create a certain amount of liquidity by funding with a bail out the various failed investments. If we did this, capital would be injected into the system. Of course, we would be putting it in the hands of the people who brought the system down in the first place, but they would have the capital and they could begin to invest it.
But what will they invest it in? What we would like to see is the capital invested in things that would bring jobs to the United States. But they could invest it in anything they want. Russian oil futures, for example, or gold contracts.
The government could also inject capital into the system by making its own direct investments on the ground. It could invest in things like roads, bridges, rail (including high speed rail, commuter rail, and commercial rail through the various choke points all over the country), energy modernization, education, and health care. The banks would still get the dough, from the bottom up. The good thing about this is that it would guarantee that the money would be spent in the United States (at least at first) and through the magic of the multiplier (look it up) we might end up getting more bang for the buck. Stocks and bankers could recover the old fashioned way; they could start earning their money.
The failed bail out plan did not do this. Many people are still thinking about how they can turn the clock back a few months so things would be like they were. But things will never be the same. They never are after a collapse.
For the longest time the average person would not get into stocks. Now it will take a long time to get the average person to get back in.
Yesterday, I had to direct the Monday duplicate bridge game- usually a competitive but fun event. During a break, though, angry words were exchanged among usually level headed folk.
I bring this up to note that partisanship is running deeper and deeper and solutions to real problems, even crises, are hard to find.
I agree with this morning’s NPR piece that the vote against the bailout was set before folks voted and that the Pelosi and subsequent Frank comments were just the partisan follow up.
The problem is moving ahead when we can’t move toward a common good, by compromise, because our ideologies and the desire for power that is concomitant outweighs the needs of serving the people.
That’s why i think unitive change alone can help us really move forward.
Living in a “swing state.” I’m tired of repetitive propaganda commercials by candidates and PACS that do not inform but merely harden ideology.
I’m tired of the horrors of misuse of power, such as the firing of our former prosecutor, David Iglesias, and I doubt anyone will really be prosecuted.
I’m tired of folks making political gaffes and then blaming the media.
I’m tired of those who when justly criticized, argue back by saying look what the other guy/gal did.
All of this hardens ideo.ogy, destroys compromise and undermines the common good.
I se little hope for a reasonable resolution to this economic crtisis until not only our polticians ,but we ourselves act more grown up and concerned with the bigger picture than our own smartness!
Oh, I also think the message of finding unity also applies to our beloved Holy Mother.
I think the message of the Gospel continues not only not to grow but be diluted by the forces of division who see only their view as THE view. So, Bishop Burke (above).
The politicization of one view will just confirm foks one way or another in their preconceived views.
Focusing on one issue as opposed to the whole context wil just further divide.
Let me ask again: why was it allowed to come to a vote, if the votes were not there?
I understand that $1 trillion in wealth evaporated with the Dow’s drop yesterday. This is very expensive partisanship, or incompetence, or whatever it was that drove that vote yesterday.
Jim, I think the consensus is that Boehner didn’t realize how many Republicans would refuse to vote for the bill. As I understand it from reading what is probably gossip, Pelosi promised to get 118 Ds on board if Boehner could cough up 100 Rs — She delivered 140, many probably through that “partisan” speech, but even with that additional margin, Boehner couldn’t get enough. He would have needed 78.
I am sure it’s a bad day for Boehner.
Unagidon’s point is a valid one, and though I am not sure what the antidote is, I assume it would include a more balanced bill that gave federal dollars to truly troubled (but solvent) institutions for more targeted kinds of debts, and that also gave more assistnace to homeowners, and possibly, that tried to offset its cost with transaction or other fees on investments.
Kathy, analyses have concluded that if investors hung on through the Depression or invested shortly after Black Monday, they would have been financially better off than if they had taken their assets out of the market and invested at nearly any later point in time, so long as their investment horizon was sufficiently long (something like 12 years).
Barbara said: “I am sure it’s a bad day for Boehner.”
Why? It was my understanding that Rep. Jim Clyburn was the Majority Whip for the Second Session of the 110th Congress. I thought Rep. Boehner was just the Minority Leader.
Just a shout out to Barbara, whose insights I find really helpful, like the one at September 29th, 2008 at 4:59 pm.