The Day After

Well, the last couple of days could have gone better, couldn’t they?
The Wall Street Journal has probably the best overview of Congress’ failure. Lest anyone get the wrong idea from yesterday’s post, which I will freely admit I wrote in a heat when emotions were very raw as the vote slipped away and the stock market collapsed (the credit markets are worse – LIBOR more than doubled overnight, which should frighten the bejabbers out of anyone who pays attention to this stuff), I do think there’s plenty of blame to go around in both parties here (naturally, CNN and other media sources are blaming only the Republicans, ignoring who has a majority of votes in the House):
Let’s start with the obvious: the credit crisis demands action (I’d love to take the purist free market position of letting lots of businesses fail, but while that makes sense in the case of any one enterprise, the credit/debt markets are like the atmosphere of the economy; if there’s no atmosphere, things get uglier by multiples for lots of bystanders who didn’t make any mistakes related in any way to the crisis. Here’s one canary in the coal mine: the New York Sun, quite possibly New York’s best newspaper. If you don’t believe me, listen to Tom Coburn, the Oklahoma populist who is such a good friend to taxpayers that all four candidates in the presidential race have fallen over themselves seeking a share of credit for battles Coburn led). And more to the point, if any action is going to take place it has to be large, rapid, decisive, complex, unpopular, and unpleasant for principled people on both sides of the aisle.
Congress, of course, was basically designed specifically to not work this way, and by nature it attracts people who don’t work that way. On some level you can’t fault the House of Representatives for falling back, when pushed hastily to act on something that was clearly beyond most Members’ understanding, on just representing popular anger against the bailout plan that was pouring in to their offices. (This is also why we generally don’t put Congressmen or Senators on national tickets – we may have low expectations for legislators, but couldn’t abide this sort of behavior in a President).
An aside: an awful lot of basic economics is just common sense expressed in equations, charts and terms of art, and is therefore easy enough for adults to understand if they think about it a little. As a result, there are a lot of people in Congress, at least on the GOP side and among moderate Democrats, who I would trust to understand the essentials of how the economy works.
Modern global finance, when you cut all the way to the gray matter of how the system operates, is another story. It’s clearly not something a lot of conservative Republicans in Congress undertood, or that most Congressional liberals would even bother to try to understand. And we’re stuck with one Presidential candidate who spent his whole life in public service and seems to think that profit motives are somehow a lesser calling, and another who has proudly boasted of turning away from the private sector and is obsessed with income inequality rather than how income and wealth gets created in the first place. Even the Harvard MBA in the White House is an oilman, not a finance guy. Quite simply, our political class is not equipped to handle this crisis. Now, the traditional conservative answer to that is to say, well, that’s why we let the market sort this stuff out rather than entrusting politicians with things that, if they understood them, they wouldn’t be politicians. But at this juncture, I’d rather trust the Goldman Sachs guy, Paulson, to come up with the answer (and as another aside, thank heavens Bush got a qualified Treasury Secretary on the third try after the two prior efforts to give the job to industrial CEOs).
House Republicans and John McCain
Whether House Republicans voted “no” out of ideological principle, responsiveness to angry constituents, fear of losing re-election, ambition to rise within the caucus, pique at Nancy Pelosi, or some combination thereof, they win no awards for courage or wisdom in a crisis. The GOP House leadership bit the bullet and came back on their shields; they can’t be faulted for lack of courage but they were ultimately ineffective in whipping their own caucus.
I have noted a few times that I agreed on policy grounds with John McCain’s decision to involve himself in the negotiations, and the record bears out that his involvement helped House Republicans improve the deal enough to get 60+ votes. Patrick Ruffini continues to argue that it was bad political strategy, and he’s probably right that McCain neglected my rule that you never fight legislative battles you can’t afford to lose. Either way, McCain did not, in the end, come up with enough House GOP votes to ensure passage. He bought into the process, and didn’t deliver the final product.
As a matter of pure political theater, if I was running the campaign, the ideal resolution this week would be to have McCain, or better yet Gov. Palin, get the whip count from Roy Blunt of the most-wavering Republicans, and burn the phone lines to round up 12 House conservatives who voted against the bailout but could be persuaded to switch. Given suddenly softening public opposition to the deal after yesterday’s market crash, this may yet be possible, and given that the holdouts include a lot of rural/small town Republicans, Gov. Palin may be just the person to speak their language (and promise to campaign in their districts and defend their decision). Then, hold a joint press conference hailing them as heroes for biting the bullet to switch their votes and save the economy and, while she’s at it, explain to the media that she has learned as a Governor that being a doer matters more than being a talker. “Nancy Pelosi, here are the votes you couldn’t deliver in your own caucus. Now, let’s get beyond finger-pointing and do the people’s business.”
That would be a political masterstroke, which could be accomplished entirely by conservative Republicans without the assistance of a single Democrat or wobbly moderate; it would stand the entire blame debate on its head and totally and instantly remake her reputation going into Thursday’s debate. Of course, dramatic gestures of that nature rarely seem to work in politics, but I can’t see why it would not be worth a try.
UPDATE: I see Tom Maguire has suggested nearly exactly the same thing.
House Democrats and Barack Obama
Leaving aside policy, Karl Rove pretty perfectly captures here the political and emotional dynamic on the House floor as the vote came down:

H/T. The question of the day is whether the failure of the bailout package was proof of Pelosi’s and Barack Obama’s incompetence or their deliberate choice.
On the incompetence front, well, most of you will remember how the whip operation worked when Tom DeLay was House GOP Whip and later Majority Leader: Republicans running the chamber basically never lost a floor vote because DeLay would twist arms until they snapped like twigs to get those last few votes, and would not bring a bill to the floor until he damn well knew he had those votes. The House is not the Senate; the minority has no formidable powers of obstruction. The majority gets what it wants, period. If you assume Pelosi wanted this to pass, you would think she could have used every procedural device and lever of influence in the book to make it happen.
But increasingly, it looks like this was deliberate and done to place the interests of blaming Republicans over the nation. Soren Dayton rounds up the damning evidence, including the fact that Pelosi never even had her Whip, John Clyburn, do his job and round up support. Then we get this, which even the New York Times couldn’t find an excuse not to print:

Mr. Holtz-Eakin said Mr. McCain had made “dozens of calls” on the bill, some to House Republicans who opposed it.
Aides to Mr. Obama said he had not directly reached out to try to sway any House Democrats who opposed the measure.

H/T. Go back and listen to that list reeled off by Rove, and notice the presence of a lot of Obama allies, including Congressman Jesse Jackson jr, national co-chair of the Obama campaign and a frequent spokesman on Obama’s behalf (Jackson’s statement is here). (Obama’s own Congressman, Bobby Rush, also voted No). Do we really think Obama could not have swayed Jackson’s vote on this? Are there really not twelve House Democrats, not even in the Congressional Black Caucus – which voted heavily against the deal – who care what Barack Obama thinks? (If not, that bodes ill indeed for an Obama presidency).
In other words, neither Pelosi nor Obama raised a finger to make this happen, and their defenders must at best argue that they are so ineffective they could not have made a difference if they tried (I mean, if you can’t buy William Jefferson’s vote…). Barney Frank was bragging that he could persuade a dozen more Republicans if they’d give him the names, but three Massachusetts Democrats, Stephen Lynch, John Tierney and William Delahunt, all voted No as well, and Frank doesn’t seem to have made any headway with them. Pelosi’s speech laying into Republicans on the eve of the vote just seems the icing on the cake here.
Needless to say, deliberately contributing to the defeat of legislation they professed to support, solely for political gain, would not reflect well on Pelosi or Obama. But as little respect as I have for their competence, I can’t look at their inaction and think they are really fools enough that they could have been trying to pass it and acted as they did.
That said, I do not think four years of this would be at all healthy for the conservative movement. (H/T Ace). I mean, it was fun to read and several of the individual factual pieces are worth repeating, but the overall theme and especially the flow chart just reeks of “truther”-style conspiracy theory.
President Bush
I don’t especially blame Bush for the vote failure – it’s not like he has any political chits left to call in (how totally obvious is it that Bush would have been happy to head back to his ranch about three months ago?). Then again, if one of the lessons of Bush I was that you need to spend your political capital while it lasts, one of the enduring lessons of Bush II is that maybe you shouldn’t spend it all and have nothing left for a rainy day.

9 thoughts on “The Day After”

  1. The bill is insanity – throwing good money after bad. If I have to pay for all these defaults shouldn’t i at least get a lien against the property? Dems are hoping for all out disaster – which for them means POTUS Obama on 11/5.

  2. Well, the mortgage backed securities are generally backed in part by the issuing bank’s right to foreclose on the property, so in an indirect sense, the taxpayer does benefit from that lein.
    Seriously, the taxpayer is likely to end up not paying a dime, and certainly nowhere in the vicinity of $700 billion, if this is done halfway competently.

  3. “Seriously, the taxpayer is likely to end up not paying a dime, and certainly nowhere in the vicinity of $700 billion, if this is done halfway competently.”
    If only this fact was understood by the vast majority of the voters who opposed the plan. They are looking at it the wrong way….they are…uh…seeing a viking boat when they should be seeing an airplane…

  4. Crank – I udnerstand this to be more of a wealth transfer mechanism than anything else. The treasury is going to buy securities at a lower than face value price and then sell them to buyers (most likely foreign cos and SWFs sitting in US treasuries yielding piddly) at a supposedly higher price. This should be a simple move and an easy sell to the public. What I want to know is if this truly is going to be a steady stream of buying and selling, why not start with a small amount and re-use that same say $100 billion over and over? I feel this was sold horribly, and the pricetag was set extremely high and scary for the general public, which is dumb enough to think that a minority party blocked a vote that only needs a 1 vote majority.

  5. The reason we need a lot of capital to start is because the securities won’t regain value overnight. But they should regain some value in two different ways that are really the same.
    1) The Treasury offers a price for a bond of certain characterisitcs. Then the market value of that type rises. This frees up capital for banks and they can lend again.
    2) As the housing market recovers, the defaults slow to a halt and the bonds rise in value. But the housing market isn’t going anywhere until the banking system unlocks. So 1) and 2) are joined at the hip.
    This is why we have to be prepared to hold the bonds as long as it take. But that is a good thing, believe it or not. There is little doubt the Treasury can borrow the $700b at less than 5%, but the assets we’re buying carry current interest rates of between 10 and 20%. So we’ll skim off the difference every year.
    Of course, that’ll go for more handouts to deadbeats so if you need a conservative reason to oppose the bill besides the obvious ones, you have it. The surplus should be for Social Security only, and we should start showing substantial surpluses about the time the bonds really start to kick off income.

  6. Sorry. The bonds should start kicking out a lot of principle recovery surpluses about the time SS becomes very crochety and needy.
    Oh you know what I mean. And get off my lawn!

  7. Don’t trust the LIBOR. Until they get actual quotes instead of “please tell us what you got this for”, it’s as much as lie as CPI numbers are. That is, they go lower than actual.
    538 had the best I’ve seen of who to blame: People who are running for reelection, and need those votes.
    And – you neglect the very basic fact that all of the House is getting pounded by people who didn’t want this, both sides. Thousands of letters and calls against, very few for, for nearly every member. And both sides know what Rove said in that interview – that the other side will hammer them for it.
    DeLay never had to face getting votes in the face of something like this, going into an election. And this wasn’t something that could be just sat on until the votes were there.
    “What I want to know is if this truly is going to be a steady stream of buying and selling,”
    The Treasury is not going to reinvest profits in buying more, or even the original money put in. If it buys $100M, and sells for $80 or $120M, that money coming back does not go back to the bailout fund.
    And that’s not including it may take 4 days or 4 years to sell some of these – too much time to reduce bad securities.

  8. I think the bailout is coming, Crank. What I am wondering is if they will wait until after election day and have a lameduck congress work on it or wait until the dems and Obama have total control in Jan?

  9. Good post.
    Am I the only one out here who thinks Pelosi et. al., knew the vote was going to fail and actually wanted it to fail? That’s the only conclusion I can come to unless I assume Pelosi was stupid enough to call for a vote not knowing if she had the votes. Because look at what has happened: the vote failed. The media jumps all over the GOP even though nearly 40% of the Democrats voted against it too. The markets plunge. Angst. Anxiety. All a good formula for Obama.

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