Gordon Campbell on the House rejection of the bailout plan
So the House has rejected the bailout plan – or more correctly, the House Republicans rejected the plan concocted by their own President and Treasury Secretary. Has any president ever been so humiliated as Bush? President Bush was treated like a plague carrier at his party’s convention this year. and is now being ignored by Republicans who have decided that their best chance in November is to run against their own President, and their own party’s prescription for saving the country’s financial system.
That headline on Marketwatch that goes ‘Congress to Wall St; Drop Dead !’ says it all.
And the path ahead ? Well, the Democrats could try to stitch together a deal that entails something far closer to nationalization. That could bring most of the leftish Democrats who voted “No” in the House back on board – but at the cost of leaving the Democrats owning the bailout plan entirely, and thus taking all of the political flak this unpopular plan will bring in its wake, while still providing no guarantee that the $700 billion infusion will be enough to make the bailout work in practice. The political risks of going down that route are intolerable. It would allow the Republicans who have been largely responsible for this mess to enjoy the luxury of running as populists in November against the only solution on offer.
In the meantime, we will soon see if the doomsayers who were touting the bailout plan were right, and total collapse will now occur. Or not. At the theoretical level – ie leaving aside the politics of it all – a consensus is forming that a solution based on the Swedish bailout in 1992 is the best blueprint for action. See Paul Krugman for instance, in today’s NYT citing the Swedish model as the way to go and Brad DeLong is also advocating the Swedish solution, which is what Scoop also supported in yesterday’s column.
Politically, could a deal based on something like the ‘Swedish solution’ get the numbers? Maybe. The “No” margin in the House today was 228-205, with opposition coming from 133 House Republicans and 95 Democrats If stronger nationalization planks were inserted when the Bill returns to the House – and more stringent caps put on executive salaries – most of those 95 Democrats would swing back on side.
More Republicans though would tip into opposition. As mentioned, the economic risks of collapse have to be weighed against the political costs of polarisation. Republican political operatives with their eyes on November have had a target of 150+ Republican “No’ Votes in the House . Once again, from the Next Right blog ten days ago
Let this be the political establishment (Bush Republicans in the White House + Democrats in Congress) saddling the taxpayers with hundreds of billions in debt (more than the Iraq War, conjured up in a single weekend, and enabled by Pelosi, btw), while principled Republicans say “No” and go to the country with a stinging indictment of the majority in Congress….
Some of this is sheer cynicism from the Republicans, and some of it is based on principle. As Marketwatch says :
Many Republicans in the House were never persuaded that the credit crunch in the financial system is an impending disaster deserving of taxpayer aid. Politicians who had cut their teeth on free-market principles couldn’t accept the idea that the federal government should back up the banks who had foolishly bet everything on the housing bubble.
Some of the opposition to a tough bailout plan also based on sheer hypocrisy. Did you ever think you’d hear Newt Gingrich, the arch conservative figure of the 1990s, argue that governments know better than markets about how to set prices ? No, me neither, but Gingrich will apparently advocate anything to shield his Wall St chums, as this Floyd Norris column indicates :
Yesterday, on “This Week” on ABC, Newt Gingrich argued for suspending the mark-to-market accounting rule [ which the bailout plan suspended, thus allowing banks to hide the real value of their losses ] on the ground that market values now are unreasonably low. To support that thesis, he pointed out that both the secretary of the Treasury and the chairman of the Federal Reserve think prices are lower than they should be.
They make that claim in arguing that the government can pay above-market prices for dodgy assets and eventually make a profit.
Did you ever think you would hear a leading conservative say government officials are better judges of value than the market?
( This incidentally is why the Swedes in 1992 made banks take the write-down first, before the bailout – to try and limit the opportunities for overcharging on the toxic assets involved. )
Meanwhile, a lot of the opposition among House Democrats was based on principle as well. Many who voted “No” felt it was wrong to bail out the corporate crooks on Wall St – with precious little being asked in return – at a time when ordinary Americans have been losing their homes in merciless bank foreclosures. So far, the bailout plan has contained only token measures on nationalization, on punishing those responsible and on protecting ordinary citizens from bank foreclosures. Truly, the first crisis of the Obama presidency has arrived, six weeks too early for him to do much about it.
In the meantime, there is talk of New Zealand fund managers buying in while US stock prices are – allegedly – underpriced. Oh really? At a time when the US markets are widely forbidden to engage in short selling (see the Norris column above ) how could they possibly tell?