Baseball Crank
Covering the Front and Back Pages of the Newspaper
September 29, 2008
POLITICS/BUSINESS: Delay For Its Own Sake

Crash & Burn

SECOND UPDATE: Well, the House has voted the bailout down 228-205, despite 66 Republicans (including basically the entire leadership) throwing in behind the bill despite their distaste for it; the Democrats lost something like 40% of their caucus. Seems to me that McCain, having gone all-in for this bill, now has to do Pelosi's job for her and locate the last 13 votes to get this done. We know Obama can't and won't, despite bragging that he deserved credit for the deal.

UPDATE: Looks like they are voting anyway and at last check, the House is about set to vote the deal down. Hold on to your seatbelts, folks.

So, the word just came down that the Senate will not vote on the bailout package until Wednesday night. House Republicans should refuse to vote on the deal until the ballots are cast in the Senate. And Nancy Pelosi and Harry Reid should be ashamed of themselves.

Really, I had intended to write up a review of the progress made in the negotiations over the weekend, but it is just astonishing to me that we have not had votes in both Houses first thing this morning, and as the Democrats run the place, this is entirely their fault.

You may or may not agree that the bailout bill is necessary, but the Democratic leadership in Congress is supporting this bill on the publicly avowed theory that it is. And the reason why it is perceived as necessary is to shore up confidence in fast-paced credit markets. Yet not only did we have dithering last week driven by Democratic efforts to turn the bill into a Christmas tree of special interest favors like earmarked handouts to left-wing groups like Barack Obama's friends at ACORN and unrelated corporate governance provisions for the whole economy, but now the Democrats seem in no hurry to bring the bill to a vote.

I know it's hard to get this all written down and digested. (Which, by the way, is one reason all the extras should never have been piled on). But Members of Congress get paid to make decisions. They had all weekend and then some to evaluate the basic merits of the Paulson bailout plan. And every day, every hour that there's no deal, there are additional financial institution failures, further tightening in the credit markets, and uncertainty-driven losses in the stock market.

The reason why the Democrats want delay is extraordinarily simple: electoral politics. Economic uncertainty always plays against the party in the White House. The polls over the last week bear this out. Every day the agony is prolonged and more people lose money, it benefits Obama.

And of course we saw the contrasting reactions last week in the presidential race: John McCain dropped everything to go to Washington and help Republicans battle back, successfully, against all the Democratic add-ons (John Boehner: "if it were not for John McCain supporting me at the White House when I said whoa, whoa, time-out, they would have run over me like a freight train."), while nobody asked for Obama's help and he had no discernible impact on the negotiations. As a result of his decision to take action, McCain ends up more dependent on getting things actually done and delivering, a dynamic that's wholly alien to Obama, who has no experience with needing to get results.

Personally, unhappy as I am with the turn of events that brought the market to this point, I support the bailout. But House Republicans shouldn't let themselves get used to provide political cover for an emergency rescue operation if the Senate's just going to sit on it for another two and a half business days. They should refuse to play along with this effort and should not participate in any vote that doesn't include a simultaneous Senate vote.

Posted by Baseball Crank at 1:22 PM | Business • | Politics 2008 | Comments (40) | TrackBack (0)
Comments

Attempts to blame this debacle on any one party will fail. I'll know who's been playing politics by the individual votes on this issue. This has to be done, so everyone who is voting "no" is taking advantage of a perilous situation to protect their own rear ends.

Posted by: MVH at September 29, 2008 2:07 PM

I find it interesting that the market is tracking higher since the vote failed.

Posted by: maddirishman at September 29, 2008 2:15 PM

MVH - I would be much more confident if I believed they would fail. We saw first hand during Katrina that the Democrats are highly efficient at pinning blame while a crisis is at its peak and Republicans are unwilling to fire both barrels.

Posted by: Crank at September 29, 2008 2:18 PM

What I meant was fail to convince me. This is Bush's bill as much as it was democratic congressional effort, and it supposedly had the backing of republican congressional leadership. So I blame everyone if it doesn't pass, and particularly those who vote against it.

Even if what you are describing with the Senate/House vote timing is true, it isn't significant enough to warrant republican obstruction. I don't think a two-day delay at this point would affect next month's election.

As it stands, the -voters- are pinning blame on the republicans, rightly or wrongly, and I don't think the democrats have anything to do with that.

Posted by: MVH at September 29, 2008 2:42 PM

The fact that over 90 Dems voted no leads me to believe there is hope for their party yet.

Sorry Crank. I don't think this bill in its current form is good for the country.

Posted by: maddirishman at September 29, 2008 2:49 PM

Let me get this straight Crank? You support the bailout but admire McCain's leadership in stopping it from passing?

Did you consciously devolve from thoughtful critic to partisan hack or has it just happened naturally since you started to see the White House slip away?

Posted by: Dan at September 29, 2008 2:50 PM

admire McCain's leadership in stopping it from passing

Um, explain how you think he stopped it. Pelosi was unwilling to take the deal she had to a vote without R support; they were stalemated. McCain threw his weight behind getting Boehner dealt in so they could work out a deal that got 66 R votes, more than enough to pass the thing with bipartisan cover if Pelosi held her caucus together.

Posted by: Crank at September 29, 2008 2:55 PM

I should add that I'm not saying McCain's been exceptionally admirable in this crisis; he's done some good things and some bad. His suggestion of handing the SEC over to Andrew Cuomo was daft, for example. But McCain at least did his job and had a place at the table, as he always does. Obama assumed that actually doing anything was someone else's job.

Posted by: Crank at September 29, 2008 3:00 PM

Republicans of course are going to try to blame most of this on the democrats. They have to or they lose the election. I don't think it's fair that the Republicans are taking the hit for this Wall St. mess, but there it is.

As far as I'm concerned, both parties knew the bill would be unpopular, and both parties were trying to make sure they didn't lose. The house republicans are equally to blame. They knew they could get away with vetoing the bill because of Bush and the democratic majority. It's a big game of political chicken, and if they don't stop playing it soon the economy is going off the cliff.

Posted by: MVH at September 29, 2008 3:10 PM

So, let me get the timeline straight:

1. You were a free-market-to-the-bitter-end Republican.

2. The lack of oversight and regulation in the banking industry leads to massive failures in high-risk mortgage debt.

3. Democrats seize the opportunity to implement their devious plan to federalize the banking industry and forward some of the proceeds to ACORN. They have enough votes to push the bailout through, even without Republican assistance.

4. Excluding the pork, you support the bailout, blaming Dems for politicizing the issue. You praise McCain for working with both parties, reaching across the aisle, yada yada ad nauseum.

5. The pork gets pulled, the corporate governance (egads - is it a Socialist plot?) items remain, you're still for the bailout, the House, led by a consortium of Republicans and not a small number of Democrats kills it. The Dow is, as of this writing, 572 points down.

6. you praise McCain's work on behalf of the bailout - although he didn't cut the mustard, apparently. You bedevil Obama because he's supposedly got friends at ACORN, but simultaneously had nothing to do with the package. You're still in favor of the bailout, but now feel that nobody has been playing political football with this thing but those confounding Dems. However, Republican members of the House are quoted on the House floor as stating that "we all want to keep our jobs".

You must be getting awfully fat with all that cake you've been having and eating, too.

Posted by: macsonix at September 29, 2008 3:18 PM

The Democrats did not have the votes to push it through, not if their behavior is any indication. They were unwilling to put the bill to a vote without GOP support, and held out until - with McCain's help - they at least got 66 Republican votes in a chamber the Dems control.

I don't think Republicans who voted against this are blameless here, either. I wrote a few days ago that it was foolish to oppose this.

Posted by: Crank at September 29, 2008 3:25 PM

I think it's foolish to oppose it also.

That said, when Pelosi was asked last week why the Democrat-controlled House didn't just pass it themselves, she said she needed some GOP votes in order to cover her ass politically. Fine, she got 66, plenty enough for cover. But she didn't get her own troops on board. WTF? Is she the Worst Speaker Ever? Sure looks like it.

And to add insult to inury, after courting that support she took the floor before the vote to shit all over the GOP and blame this mess on Bush and the Republicans one last time. Immediately before the vote!

I can't see how any reasonably sane observor could conclude anything but that she blew it in spades. Worst Speaker and worst Congress ever.

Posted by: spongeworthy at September 29, 2008 3:34 PM

Market now posting a greater-than-700-point drop. You're right, Crank - if there has ever been a strong argument for voting out every single incumbent, this has got to be it.

Posted by: macsonix at September 29, 2008 3:36 PM

"Seems to me that McCain, having gone all-in for this bill, now has to do Pelosi's job for her and locate the last 13 votes to get this done."

Well, it is interesting that you say this, because it is certainly in McCain's interest to try as he might to get the 13 votes - it's his ship going down.

But really, the only leverage he has is to say: "do you really want a democratic president?" I don't know how much effect that will have on congresspeople who want to keep their jobs. I think the leadership for both parties will have to do some serious arm-twisting to get those votes. In other words, vote for this thing or see how miserable we will make your term in congress.

Posted by: MVH at September 29, 2008 3:36 PM

"I can't see how any reasonably sane observor could conclude anything but that she blew it in spades."

Pelosi's speech was the height of stupidity - no argument here. I really doubt it impacted the vote much, though. Those vetoers were looking after their own backsides.

Posted by: MVH at September 29, 2008 3:40 PM

For the record, I don't think it's any excuse for Republicans in the House to complain that mean old Nancy hurt their feelings. That said, the speech was a boneheaded move. First of all, this cracked me up:

I must recognize the outstanding leadership provided by Chairman Barney Frank, whose enormous intellectual and strategic abilities have never before been so urgently needed, or so widely admired.

Heckuva job, Barney.

Second, you will note that after absolutely blistering Obama a week earlier for his responsibility for the crisis, McCain pulled his punches in Friday's debate. I had assumed he was doing so in recognition that going guns ablazing on the finger-pointing was a bad way to get a bipartisan deal done. Clearly, Pelosi sees things differently.

Posted by: Crank at September 29, 2008 3:42 PM

macsonix:

I don't follow your argument in your initial post, but #2 makes a significant conclusion with little proof.

There are many out there who argue that the market for high-risk mortgages didn't fail due to low oversight and regulation of the banking industry, but that it failed due to the fact that the government, through the government-sponsored enterprises, over-valued high-risk mortgages. Thus, the market produced too many of them, compared to the amount of risk it could support. The result being our current situation. See the blogs "Cafe Hayek" and "Carpe Diem" for more explanation on this point of view.

Posted by: DKH at September 29, 2008 4:00 PM

So the GOP voted against the bill-- not on merit, but because Pelosi hurt their feelings.
And these are the folks who will stand-up to the terrorists?
Some people will fall for anything. (They're called the American public).

Posted by: Berto at September 29, 2008 4:04 PM

Berto:

Posted by: DKH at September 29, 2008 4:08 PM

Shouldn't you be happy that the bill was voted down, Berto? Didn't you say you wanted the capitalist economy to crumble so that the people could construct...uh...whatever alternative political system you had in mind??

Posted by: MVH at September 29, 2008 4:11 PM

Two-thirds of Republicans voted against this bill while 60% of the Democrats voted for it. Spin all you want, Crank, but Americans will do that simple math and figure out which party is to blame for its failure to pass.

Posted by: Ryan at September 29, 2008 4:12 PM

Berto:

I don't see anyone here, particularly not the blog owner, making that argument.

The argument that I see being made is that one party is interested in working with others (evidence: McCain pulling punches during debate), while the other party would like to score (justified or unjustified) political points (evidence: Pelosi bashes Bush and Republicans) while a deal is being hammered out that may or may not be necessary for our credit markets to function.

What is annoying to me is the simplistic view of the situation: a particular party is in control of the White House when something happens; thus, it is their fault. As though blame for a complex system could be assigned that way, and as though things happen instantaneously and are not affected by the past.

I don't know how most Americans view it, and I don't know who is right, but right now it looks like Democrats think that I'm stupid enough to accept a highly simplistic view, and that is what I find consistently insulting from that party.

Posted by: DKH at September 29, 2008 4:16 PM

And these are the folks who will stand-up to the terrorists?

Berto - No, they are legislators. We don't expect legislators to do any such thing; we expect the President to. All we ask from legislators is to vote in support of that.

Frankly, that's why we shouldn't put legislators on the national ticket.

Posted by: Crank at September 29, 2008 4:20 PM

DKH: I'm familiar with the argument that affirmative action, applied to home mortgages, is to blame for the current crisis. I'm just not buying it. You'll notice that it's analysts, economists, and all sorts of other supposed "experts" who come forth to hue and cry that it's not the banks' fault - it's that damned government who forced them to give loans to low-income Americans. You don't exactly hear the banking industry saying it (unless a particular banker has a political agenda), and I call bullshit.

In 2006, 18% of Citgroups' profits came from credit card programs. In 2007, that shot up to 79%. Well before that, you and I and everyone else will recall showing up for University Freshman Orientation and being offered every manner of plastic, when we were scraping change off the floorboards of a used Pinto for beer money. Well, when the college kids and their parents and the wealthy have all made you rich, but then you realize that it's perfectly legal to charge 28% interest to some poor schmo who makes minimum wage and keep him in hock for the rest of his days, then you see that you actually CAN afford that fourth home in Key West. These companies saw an untapped market and "supplied that demand" and I'm sure resisted little when HUD, Fannie and Freddie started talking about low-and middle-income families realizing the dream of homeownership.

I'm unclear what you mean by the argument of my initial post - please elaborate.

Posted by: macsonix at September 29, 2008 4:25 PM

DKH: regarding the "simplistic view" argument -

1. I am in full agreement with you. It's absolutely infuriating to be patronized like that.

2. Welcome to the art of Rovian politics. Dems would lose big every time they stood on the intellectual, rational stump. Now the tables have turned. I'm not saying that's as it should be, I'm just saying that when being hit in the head with a shovel, you will either perish or quickly learn that hitting someone in the head with a shovel can hurt them very badly.

Posted by: macsonix at September 29, 2008 4:33 PM

macsonix, I can't and won't get into the details of that argument, but a few things:

1. Corporations are generally averse to making political arguments.

2. I don't know where you got that Citi figure but there is an important difference between profits and revenues.

Posted by: Crank at September 29, 2008 4:34 PM

macsonix:

Your view regarding the cause of the "crisis" may be right; I can't pretend to know. Certainly there are many financial institutions who chose to forgo the high-risk mortgage market.

As far as the current political landscape is vs. Rovian politics, I couldn't comment. As one of those "college kids" you discuss (although I'm not making anyone rich off credit card debt), I haven't seen the reverse of our current situation (Democratic President with Republican outsiders). Thus, to me, it is merely the Democrats who are highly insulting. Maybe we'll be seeing the reverse soon.

Posted by: DKH at September 29, 2008 4:50 PM

"and as the Democrats run the place, this is entirely their fault."
Shocking! When the Democrats run the place, it's their fault. When they are the minority party, it's their fault. When the filibuster, it's their fault. Is it any time it is not their fault?

"But House Republicans shouldn't let themselves get used to provide political cover for an emergency rescue operation if the Senate's just going to sit on it for another two and a half business days."
Jewish holidays man. Sunset to sunset - that's why it was going to be Wednesday night. Voting early in the House can be done, they can still go home. There are what, 12 Jewish Senators? Procedural issues alone eat up half the day in the senate, and that's if Coburn doesn't start droning on. It's fairly easy for a few Senators to disrupt a vote if they want to.

The reason why the House was done early was to provide stability. So that instead of 3 days of nervousness, there would be 2 days of waiting for the more stable Senate.

They COULD have tried for a Senate vote today. But it made it very likely it could have been delayed beyond sundown. And that's not counting making sure they could leave

And of course, no fault at all given to House Republicans. Who did not have a negotiator at last week's meetings, walked out on a tentative agreement late in the week, and did again today. Sure, Pelosi's speech was stupid - but the only thing stupider is using that as a reason to vote against it. Country First!

Posted by: Dave at September 29, 2008 5:22 PM

I'm going to write-in Dave on my ballot.

"that is what I find consistently insulting from that party."

That's funny, you don't find it consistently insulting that the Republicans are selling you:

1. abstinence-only sex ed prevents teenage pregnancy AND abortion
2. creation should be taught in public schools alongside evolution (althought they would prefer INSTEAD of evolution)
3. global warming = junk science
3. Wal-Mart, importing anything and everything from China, and sending our jobs overseas is good for the economy and these corporations should be given huge tax breaks for their efforts
4. judges should be vetted according to their political affiliations
5. it's not torture - it's alternative coercion therapy
6. USA good, Iraq bad. Let's go kick some ass.
7. Iran - see above

Talk about a simplistic view of the world! Seems once you're born again, nothing else matters in these circles. Kinda reminds me of some other guys who stone women to death according to sharia law, so as to make God smile upon their family. Make no mistake - if you want simplistic, if you want to send the US back to a pre-Enlightenment mindset, keep voting Republican.

I'm very big on the numbered lists today, sorry about that.

Posted by: macsonix at September 29, 2008 5:52 PM

By the way, I like the picture of the burning boat. It's got that viking funeral quality to it.

Posted by: MVH at September 29, 2008 8:12 PM

That's an airplane.

Posted by: Crank at September 29, 2008 8:15 PM

Oh yeah...so much for the whole viking motif. Now that I look at it harder, it looks nothing like a viking boat. Luckily, I won't be doing any heavy thinking for the rest of the evening.

Posted by: MVH at September 29, 2008 8:25 PM

Crank -- what is 8% of the entire market? I am guessing its around $700 billion. So Congress decided not to transfer $700 billion to reckless Wall Street bankers and the market fell accordingly. The US Treasury is all the richer. We lose it in our 401(k)s and but save it in future taxes. Any small government conservative should celebrate, no?

We may look back on those Dems and Republicans that derailed this as heroes.

Posted by: Patrick at September 29, 2008 9:50 PM

"There are many out there who argue that the market for high-risk mortgages didn't fail due to low oversight and regulation of the banking industry, but that it failed due to the fact that the government, through the government-sponsored enterprises, over-valued high-risk mortgages. Thus, the market produced too many of them, compared to the amount of risk it could support. The result being our current situation. See the blogs "Cafe Hayek" and "Carpe Diem" for more explanation on this point of view."

First, over valuing high risk mortgages isn't the problem. Not treating high risk mortgages as high risk is much more. Really.
* MBS_1 is as close to perfect as you can get. Standard * MBS_2 is shoddy. 4% default rate(heavier on subprime loans), .5% early payment rate. 30 years of income. Higher risk of default, but also higher payments for higher 30 year income.
Rational people would balance this due to their needs, but some funds could not buy MBS_2 due to risk. Hence, getting better bond ratings let them do this.
Most of this happened outside of the GSE's. If not as many were rated as high, not as many MBS could be sold, and not as many loans would be given out in the future.

Now, what they did do is agree to buy subprime RMBS to a much greater degree than loans, largely spurred on by new HUD regulations. This was a leap from assuming more risk (Alt-A mainly) in 1999 and 1995, though HUD gave them a slap in 2000, and they backed off. Later, they increased it in 2004.
http://www.washingtonpost.com/wp-dyn/content/article/2008/06/09/AR2008060902626.html
http://articles.latimes.com/2004/jan/06/business/fi-fanfred6
What is worse - an individual mortgage they can pick through the numbers. RMBS makes it much harder. Not overvalued as much as doing it do meet government mandates.

Read up on the history of subprime - it existed before 94 to a small degree, but 94 was when the volume turned on, to replace lost volume due to the increase in interest rates. At which point it was recognized as a great new source of income. Getting the government to help in this income? Not something homebuilders or banks would object to.

http://online.wsj.com/public/article_print/SB119662974358911035.html
$1.9T-2.9T after 2000, of which they started to absorb around 1/6 to 1/4 total.

There are a vast numbers of reasons for what we are facing. To attribute it to one source does a great disservice, but easy to do to meet a view of "GSE shouldn't exist or be severely limited, private only!" or "private really screwed up!" Likely if you're saying this, you believed this was a problem before.

Posted by: Dave at September 29, 2008 10:26 PM

Have read this blog for a long time. I love the baseball...and always enjoyed your principled view of politics.

I just can't believe, though, how partisan this blog has become. I am not sure if it is a result of the relationship with Redstate or what it is, but there has been a dramatic change in tenor here.

I now get the feeling that anything could have happened today and you would spin it pro-Republican and anti-Democrat. I hate to see this happen to one of my favorite blogs, especially considering that I agree with most of the positions you have supported over the years. Leave the partisan garbage for redstate and dailykos....bring back the sharp, principled discussion!

Posted by: cw at September 29, 2008 10:39 PM

Have read this blog for a long time. I love the baseball...and always enjoyed your principled view of politics.

I just can't believe, though, how partisan this blog has become. I am not sure if it is a result of the relationship with Redstate or what it is, but there has been a dramatic change in tenor here.

I now get the feeling that anything could have happened today and you would spin it pro-Republican and anti-Democrat. I hate to see this happen to one of my favorite blogs, especially considering that I agree with most of the positions you have supported over the years. Leave the partisan garbage for redstate and dailykos....bring back the sharp, principled discussion!

Posted by: cw at September 29, 2008 10:39 PM

Ah, in a long comment thread, we can always count on someone wanting to do a link exchange.

Seriously, what I find sad about this is that Obama will benefit. In times of crisis, what this country needs are leaders who have a history of making tough and unpopular political decisions, have lived through times of personal hardship, and have shown the capacity to rise above partisanship. Obama fails on all three counts.

Posted by: per14 at September 30, 2008 8:05 AM

From blackhedd this morning:

"Why do the bailout now? Good question. Over the last ten days, it's dawned on market participants that it's time to write down the equity of banks and Wall Street firms.

As firms variously fail, merge, or recapitalize, you'll see the government scrambling to respond to each situation in an ad hoc way, as you saw with Bear Stearns and all the others.

A key value of the bailout is that it would have given Treasury a single facility through which they could relieve the pressure on asset values that always comes when a large firm fails. If there's no bailout program, they'll have to keep making it up as they go along.

The bailout would have made it possible to manage the demise of large parts of the financial system in an orderly fashion. Without it, there'll be a lot of collateral damage, as some perfectly healthy firms get taken out along with the garbage.

Why can't we use every tool in the box to improve liquidity and restore credit? Well, how much more do you want to create? The Fed has created $630 billion in new currency swap-lines, in less than two weeks. It's not helping in the slightest.

Nearly every participant in the financial system now is trying to manage uncertainty, whereas in normal times their job is to manage risk.

When times are uncertain, you look for ways to call capital back, not to put it to work. That's why we have a credit crisis. Handing out central bank liquidity just makes it possible for people to meet their current obligations, not to expand.

And just printing money (which the permanent form of central bank liquidity) just creates inflation."

Posted by: MVH at September 30, 2008 9:21 AM

Nearly 3 hours into the trading day and the Dow is up over 250 points. Hmmm. Maybe the court of public opnion has lived to fight another day.

Regardless of their motives - which I would attribute more to "wanting to keep their jobs" and therefore concerned more with political posturing than with the honestly-held belief that it's the right thing for the economy - this ragtag group of Republicans and Democrats have aligned, willingly or through coercion and arm-twisting, with the overall taxpayer and voter sentiment across the US.

Perhaps we are witnessing a pivotal moment - not only in economic terms, but in American political annals. The Reds went against the sitting President, his administration, and the overall leadership of the party. The Blues also bucked the erstwhile management of Pelosi and Reid. Perhaps this is what true bipartisanship means. Maybe we are seeing the beginning of the end of the two-party deadlock that paralyzes the country at worst and cripples it at best.

But I wouldn't bet $700B on it.

Posted by: macsonix at September 30, 2008 10:52 AM

ABC News Poll:

Who is mainly responsible for the defeat of the financial rescue?

Republicans 44, Democrats 21

Posted by: Ryan at September 30, 2008 12:00 PM
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