This was not a good moment to be reminded that the separation of powers, and the hypersensitivity of the US Congress to public opinion, sometimes have drawbacks. It would have been better to pass an imperfect bailout plan promptly than come up with an improved version after a delay of days or, heaven forbid, weeks--always assuming that it is improved, in the end, and does eventually pass. (I say more about this in a recent column for National Journal.)
Whatever gets voted through is not going to be the last word on the subject in any case. Nothing like it. The plan will be revised on the run for months and maybe years. Prompt and basically sound action with broad political support was the order of the day. The country's politicians were incapable of it.
All the principals deserve a share of the credit for this truly astonishing shambles. The administration, in the first place, failed to prepare Congress for legislation of this kind. The possibility that something like TARP would be needed was easily foreseeable once Bear Stearns collapsed--which was months ago--if not long before. Yet the bailout plan was thrown together in a matter of hours and presented to Congress in an absurdly abbreviated form that said, in effect, authorize us to spend $700 billion as we see fit, or else. That was ridiculous--but no more ridiculous than embarking on a debate about the details of the plan, let alone about basic principles, as the credit system stood on the verge of complete breakdown.
It was an even graver mistake to take public opinion for granted. The implications of the meltdown for ordinary Americans were not promptly or persuasively spelled out. In another tactical miscalculation, the administration also talked up the scale of its rescue, the better to reassure the markets, rather than talking it down--as it could have done, by pointing out to the general public that the eventual cost of the action would likely be far less than $700 billion, and that there was at least the possibility that the taxpayer would come out ahead. This was a nicety left to the financial press to explore.
The president's intervention--his almost comical attempt to exercise leadership--was worthless, at best. When George W. Bush recommends a course of action, you can feel support for it leaching away as he speaks.
The presidential candidates and their respective surrogates utterly failed to respond to the urgency of the situation. They put politics first, using the crisis to underline their campaign talking-points and to put the other side at a disadvantage, rather than uniting to back a plan that both candidates appeared to support (well, I think they supported it: this was not always clear). If they had appeared alongside President Bush and had passionately affirmed the need for the plan without equivocation or political point-scoring, I dare say the outcome would have been different. It was more important to the Obama campaign to underline the failures of the Bush administration, and to associate McCain with that failure. It was more important to the McCain campaign to distance itself from the administration and find things in Obama's position to disagree with.
Facing a public unconvinced of the need for action and boiling with rage at the idea of using taxpayers' money to help the bandits of Wall Street, Congress too capitulated. By the time the vote came round, both party leaderships in Congress were backing the deal. Yet 133 Republicans and 95 Democrats voted against it (with 65 and 140, respectively, voting in favor). Many of the members voting against face difficult re-election battles in November.
The Republican leadership blamed Nancy Pelosi's stridently partisan speech recommending the measure for the strength of Republican opposition. On one level, this is a ridiculous complaint: in the end the Republicans are responsible for their own votes. Yet as I listened to Pelsosi's speech my heart sank. I do think it remarkably disingenuous to say (as Barney Frank, Larry Summers and many other Democrats subsequently did) that it would be outrageous for a Congressman to change his mind on the substance of a bill just because he was embarrassed by a speech. Good heavens, that would be to behave like...like a politician. Don't tell me a Congressman might sink that low.
Wavering Republicans, like wavering Democrats, needed cover to vote for a bill they did not like and that many of their constituents were objecting to. Pelosi chose to rub the Republicans' faces in the mess. Twelve votes needed to switch to get the thing done. If Pelosi had struck a bipartisan note, I bet the measure would have passed.
Who is to blame? All of the above. It is a comprehensive failure of leadership. And Washington wonders why much of the country holds politicians in contempt.
How about blaming Rush Limbaugh, Sean Hannity, Michael Savage, as well as people on the left like the community at Daily Kos. The wingers on both sides got riled up and phoned their congresspeople, whipping up a lot of "oh no you isn't gonna take my damn money" frenzy at the switchboards on Capitol Hill.
Whether that's a good thing (democratic participation) or a bad thing (inching ever closer to financial cardiac arrest) I have no idea.
There's definitely blame to go around, but your false equivalence is bullshit.
Obama tried to privately work out a joint statement on the bailout with McCain based on common points both had made on the stump. He thought that this was the only way for them to support the process without it becoming partisan. McCain immediately went public in a way which politicized the process with his phony campaign shutdown.
Then McCain and Bush engineered the White House meeting in a way that looked like a political trap. Why did Obama only get 90 minutes notice and why was McCain allowed to bring his campaign economic advisor when Obama was not allowed to do so?
C'mon Clive. I disagree with you much of the time but I read you because you often have a unique perspective. Emulating the mindless MSM perspective of "balance" is beneath you.
I accept some blame for urging my Representative to oppose this plan. I am a believer in the free market and do not want my government to purchase these assets on my behalf. I will continue to advocate letting the market do what it does best and will vote this issue in November.
I've got to go with Barney Frank here: If 12 Republicans switched because they thought Pelosi was mean, let them raise their hands so Frank et al can speak to them in an uncharacteristically kind fashion. Both sides want to hang a bailout on the other (Eve Fairbanks is right about the world's largest prisoner's dilemma), and the Rs were quite blatantly attempting to lay the groundwork for a Bush-Dem bailout they could run against; not surprised Pelosi wanted to signal that "we had nothing to do with this" would not fly. Maybe she should have given the speech after, instead, but....well, name those 12 Republicans.
You are correct that there are two huge problems: The clear person to lead and explain the situation is the sitting president, and he has 0 credibility when claiming a huge unforeseen threat has suddenly appeared and he needs lots of money and little oversight while he fixes it. Zero. And Americans don't understand the crisis, even non-econ commentators are confused.
I understand some outlines, but have no idea what a bill that provides liquidity while buying assets at or just below their actual value, rather than their paper value, would look like. I suspect it would take more than a week to craft adequate oversight. How do any of us know a good bill when it appears, other than it will not contain a repeal of the cap gains tax?
There's a report out that the republicans cut attack adds against the Democrats supporting the bail out bill, before the vote took place.
The whole thing was a massive political rope a dope. Under those conditions I see no reason why the Dems should cut their own throats. Let things evolve. Frankly this should be tackled after the elections.
How about blaming the banks and investment firms that created this mess in the first place. Tanking stocks are not the end of the world and your argument that a hastily thrown together shitty plan approved immediately is far better than a fully debated, better constructed plan that takes a few weeks - completely ridiculous. Even if that bill had passed, it would still be week or even months before the infusion of cash could work their magic - with no guarantee they'll work anyway I'll add. If a couple of weeks delay is going to sink the ship then the ship was already sinking. Further, a more scaled down bailout might be preferable anyway, seeing as how the FDIC is nearly broke after the collapse of WAMU. The last thing we need right now is panic. Further, Clive, you thought Sarah Palin was the next George Washington barely a month ago. I think your soothsaying ability is in the same league as Fred Barnes and Douglas Feith. Take a chill pill, dumb-ass.
The other MSM stupidity that Clive parrots is the idea that presidential candidates should compete with the president to try to lead the country in a crisis. McCain did this in the Georgia crisis, trying to put a more belligerent face on the US response to Georgia and sending his own representatives. I think this is asinine and dangerous.
If the problem is in the Senate they should get to work. Otherwise stay out of it.
What a Republican hack you are Clive! A clever and slick hack; but a hack none the less.
I agree this was a failure on everyone's part, but I'm not sure I agree that passing a bad bill that can be modified later on is a better idea than waiting a week to pass a better bill. While I believe that some type of injection of money needs to come from the government I don't think the economy is in danger of collapsing in the next 48 hours and I'm not sure that some of these financial institutions shouldn't be allowed to fail.
For those pointing out that "a tanking stock market isn't a big deal," and sentiments to that effect: a tanking stock market isn't the danger here. The danger is a total freeze-up of the nation's credit supply. Such a freeze-up would have disastrous consequences at every level of business, because a great many business finance their day-to-day operations through short-term borrowing. It's a business strategy that smoothes out cash inflows so that regular cash outflows--like payrolls--are always covered.
A real credit crunch will also be a massacre for the real-estate market: if mortgages become widely unavailable, home sales will plummet; and in the absence of buyers, home values will plumment with them. You would see a huge write-down in home equity--where most Americans have concentrated their wealth--all over the country.
Ultimately, the falling stock market is a symptom of the wider cause. Eventually, it will fully reflect the dangers of the credit crisis. Right now it doesn't, because the information the market is getting is universally that some kind of bailout is coming. If nothing is done, we'll find out quickly enough how big the danger is--and it's not clear how we'll clean up the mess if that happens.
Jeffrey D: "I am a believer in the free market and do not want my government to purchase these assets on my behalf."
Since the "free market" has just been shown to be imperfect in the most spectacular possible way, this kind of ideological dogma ought to be obsolete by now. This is precisely what caused both the bailout bill to fail and financial markets to go astray in the first place. Like chainsaws, markets are powerful and useful things, but they'll cut you badly if you don't control them. (Of course if you control them too much, they're useless.)
Clive's best point is that the public is clearly uninformed/misinformed, and blame for this rests mainly with the administration. Paulson got a lot of time on "60 Minutes" on Sunday and didn't explain the "bailout" very well. Even the term "bailout" is charged and the $700B price tag is misleading.
Clive: I must call you on your false equivalence too.
1. Obama tried to put together a joint statement with McCain. McCain's response was that "he didnt reach me" in the morning, and then put out his OWN statement in the afternoon. What f@#$% B.S! Give me a break. McCain chose to go his own way, and tag teamed with Pres. Bush. Even so, Obama tried to get some joint statement out, but it was already poisoned by Bush.
2. Obama has been saying that things are bad for months. Granted, this is largely due to politicking and usual DNC narratives. However, his warnings regarding house prices, jobs, wages are relevant to the present instability. Causality is hard to determine, but the market's fear of mortgage default based on the reality that economic weakness increases the chances of default.
3. Obama has had a stellar team of economic advisors. McCain's advisors are less so, and any economic decision making will suffer from McCain's tendancy to go by gut instinct. Thus, while I dislike both sides' political crapola, I give credit to Obama for at least acknowleging that there are problems, and being mature enough to get good advisors and showing evidence of listening to them.
Blame? Quite possibly the public gets the credit for stopping this bill. Their phone calls jammed switchboards, and their efforts to contact representatives via the web brought down the house server. The majority of calls were to urge a no vote. They finally got angry enough to get off the couch and pick up the phone.
Who are the targets of their anger? Congress and the administration, as much as Wall Street. They are angry at congress because the primary cause of the financial problem is legislation that encouraged banks - forced, in some respects - to make loans to people who could not pay them back. All in accord with Carter's Community Reinvestment Act of 1977, extended by Clinton's National Homeownership Strategy, and enforced by Fannie Mae. Lenders were not blameless, but Fannie Mae primed the pump by allowing lenders to lay off the risk. Administrations stood by, failing to regulate, or, if regulation or investigation was attempted, key congressional leaders undermined or thwarted those attempts. Think about Hastert's job on Cliff Stearns. Think about the Baker hearings.
Banks seized opportunities, including opportunities to fail, but congress through Fannie Mae (and Freddie Mac) created the main opportunity.
It is not that wise people didn't see this coming - think John Dingell in connection with the Gramm Leach Bliley act, or Ron Paul, or McCain in his 2005 letter to Bush urging stronger regulatory oversight.
It is not that all bankers were blindly greedy - look into Wells Fargo's CEO who stayed clear of this mess so that his bank is not in trouble.
Of course, the public was asleep most of the past ten years. Should we hope they have awakened and will stay awake?
This is one of the most deeply disappointing posts you've written in your capacity as an Atlantic blogger. You're a partisan, and that's fine, but this post pushes you over into the realm of hackery. The previous commenters articulate the problems with your false equivalence better than I can.
Pelosi promised 140 votes and she delivered 140 votes. Boehner promised 80 votes, but he never had 80 votes, a reality that has been generally confirmed from a variety of news sources. Pelosi's speech is an extravagantly petty and churlish excuse for the Republicans' inability to man-up and vote for a measure most rational beings recognize as a smelly necessity.
There are rational arguments to be made in the defense of voting down the bailout, but pointing a finger at Pelosi is by orders of magnitude the most childish.
These are desperate times, time for everybody, House Republicans and their panicky defenders like yourself included, to grow up and be big boys and girls.
Reality check people, especially posters on this list who just parrot Democrat party lines. The bill failed because it comprehensively lacked popular support. Three fundamental reasons for this:
(a) Lack of leadership - Bush, Pelosi, Frank, Boehner et al made NO real attempt to explain to the people why this bill was necessary. They failed as political leaders, which is the only skill they are supposed to have.
(b) Destroyed trust - the first incarnation of the Bill provided that Paulson's spending decisions could not be questioned by any government agency or court of law. Stupid, unnecessary, and tried to slip it through quietly. Then the second incarnation provided that Paulson's decisions would be mainly overseen by a troika which included Paulson himself and the Chairman of the Federal Reserve! No wonder the public don't trust anyone who supported these bills.
(c) A very risky proposal and unlikely to succeed. Just because there is a huge problem with credit, doesn't mean that this bill was going to fix it. Since the same people who presided over the mess were going to be in charge of the rescue, and given carte blanche, they were more likely to blow America's currency reserves by buying worthless debt. The economy is going downhill, but to waste your government reserves risks becoming Germany in the 1920s.
Not a bad article, Frank.
The rats are jumping ship. McCain is toast.
The Dems are better at covering the rear ends of these swindlers because they have the media in their corner.
Does anyone hope that we have a complete financial meltdown and most of these bums get thrown out? Could be worth it.
Here's who is to blame, Mike:
1) Bush - Has always tried to steer the country by fear and hatred. His "explanation" to the country was all about fear. Did he keep the lid on this problem, hoping to run out the clock? All we got before this was happy talk on the economy. The idiot needs a news conference with some leading economists.
2) Paulson - Was Mr. Happy Talk, Jr. under orders from Bush? It's reported that he warned Bush in 2006 that regulations on the financial sector were feckless. Why did he go public with a bill that could never be passed before talking with the congressional leadership and present it as a mushroom cloud scenario?
3) Cox - Did you notice that Cox ended the program of voluntary self-regulation for financial firms yesterday. What a joke.
With all of these people screaming gloom and doom they could cause through panic the very thing they say they're trying to avoid.
The bailout failed because the core concept proposed by Bush is flawed. Call some hearings and ask some economists. Google Sweden 1992 banking crisis. They had good success promptly steering their financial institutions back to safety. Learn the lessons, write it for the Democratic base, and own it. The “compromise” tweeking that was done to the Bush proposal resulted in a toothless and weak 100 page bill that tried to bury and hide its weakness from the voters. Rather than condescendingly claiming that the American people didn’t understand (Cf, McSame of Obama at first debate), or that the leadership didn’t explain it well enough, the reality is that public outrage finally made the Republicans blink, to borrow from Palin. If they vote in favor of bailing out the bad actors, they lose votes from constituents in five weeks at the next election. That is their only moral hazard. The bill that failed would not have prevented one of the 10K daily foreclosures, could have been filibustered until Bush spent all $700B, would only have made some parachutes non-tax-deductible, merely required a report “suggesting” how the taxpayer will be paid back, and allowed the same bunch of lobbyists to set prices for their trash that the taxpayers would pay. As a final insult, instead of providing more confidence through transparency, the failed bill would allow Paulson to suspend the mark-to-market rule. This is intellectual dishonesty that will further erode confidence in our banking system. Do a better job on all these issues and allow bankruptcy judges to implement the rewriting of loans, or face the wrath of the voters. I think many voters would accept a temporary governmental equity position in the banking sector as long as the bad guys aren’t seen as maintaining their ability to subvert the programs and continue to rip off the system. Don’t pull another FISA cave.
Re: the Swedish model.
While there are advantages with the Swedish model, there are also disadvantages. The biggest problem, IMHO, is trying to make overly facile extrapolations from the Swedish situation in 1992 to the US situation in 2008. See Megan McArdle on the subject.
The American people were right for once. This bailout stinks and the elite punditry class, including this Crook, just don't get it.
The perception has been set. The world awaits a promised bailout. Are American taxpayers more knowledgeable than the White House, McCain and Obama?
Or are they suddenly just less susceptible to bad PR?
http://pacificgatepost.blogspot.com/2008/09/bailout-of-perception.html
It sure looks like it.
"This was not a good moment to be reminded that the separation of powers, and the hypersensitivity of the US Congress to public opinion, sometimes have drawbacks."
This is absurd. Congress is the only part of the federal government still beholden in any way to the public. This bill failed because of its representation in the media, not because the public are no-nothing jerks with a perchance to write their representative on a whim about a bill they are not familiar with. And they were not familiar with it. The text of the bill was only available on the library of congress' website AFTER the vote. The public didn't disagree with the language of the bill. How could they? They never read it. They disagreed with the media's portrayal of the bill.
Frankly, public support should be a prerequisite to a bill with a price tag as large as this one. Democracy worked in this instance and if someone wants this bill (or one like it) to pass in the future, they must first make the case to the American people. After all, it is their money we're talking about.
I've been told over and over for the past 30 years that the Republicans are the party of personal responsibility. As usual, however, this seems to be only in the abstract.
What we've seen w/ yesterday's vote, yet again, is that Republicans never seem to be able to stand up and take responsibility for *anything*.
Does wallstreet need a bailout? Yes. but it does not have to be this week. As long as there is a sense of progress, wallstreet will be fine.
Most congressmen and women voted as told by their constituents and most Americans do not agree with the bailout because of lack of fairness. Most Americans do not make anywhere near $300,000 a year and it is unfair to use their money to pay the same CEOs who made mistakes $300,000 a year to fix their mistakes!
Americans, however, are also generous and pragmatic. Present them with a bailout plan that is reasonably fair and they will signal their rep to vote yes.
Queen Pelosi is a different story. Many democrats will lose seats because of her.
How very even-handed of you!
Thank you for having the courage to present daring propositions like "Nobody's perfect" and "We could all do with a little improvement." (I'm paraphrasing, of course, but I think that's pretty close to the mark.)
I guess if everyone is to blame, then really no one is to blame, right?
This balanced attitude is of infinite use to a confused electorate soon forced to decide between two alternative approaches to government.
You've convinced me. My choice really doesn't matter, because everyone is pretty much equally wrong. I should stop sweating the details of complicated issues like this. The truth is, everyone is to blame. So I'm just going to pick the one who looks the most like me, and leave it at that. Whew! I can strike more than a month of attention and thought right off my schedule without guilt. That frees up some time!
Thanks!
It is breathtaking - like watching someone set his own house on fire - to watch the Republicans' insane adherence to an orthodoxy long since discredited by every available fact prevent them from admitting that reckless deregulation actually led directly to this crisis. It seems to have risen to the level of a terminal delusion that has permanently skewed all policy in our country away from common sense and into the realm of madness doomed to failure.
Certain responsible congressmen are basically trying to re-introduce (at least into this package, as part of its oversight, and to the extent permitted by Republicans) many of the same sorts of regulation that our country had in place from 1934 until the Reagan-Bush deregulation craze, and THAT effort is definitely being stonewalled by REPUBLICANS. And it definitely fucking matters that blame (i.e., responsibility) for the root cause of the financial collapse be addressed IN the bailout package, because otherwise you are putting $700++ billion worth of lipstick on a pig, to borrow a phrase.
But the Republicans' failure to acknowledge economic reality will continue, because as soon as it doesn't, their whole myth is exploded and the Republican party in its current guise is immediately dead. This final point - that Republican congressmen and the White House are acting far more out of self-preservationist desparation than out of concern - is what is lacking from your analysis, Clive.
I don't often agree with Mr. Cook but his analysis here is right on.
Had Obama and McCain stood with Bush to together tell the American people why this was necessary it would have passed.
Had Pelosi given a non-partisan speech urging support for the bill it would have passed. Had she and Reid stood together with Bush to do that it would have passed. Had the three of them done that with the minority leaders in the Senate and Congress, it would have passed.
I don't know what else Bush could have done - his support is so low and has been for so long I can't think of anything else he could have done that would have made a difference. His speech the other day was pretty good and no one cared.
Tim,
Specifically what piece of deregulatory legislation do you think caused this mess?
The bill allowing banks to engage in investment banking (i.e., the repeal of Glass Steagall)? President Clinton just gave a speech or interview (I'm not sure which) in which he strongly defended that bill.
Perhaps you are referring to the failure of the Government to reign in Fannie and Freddie? Gee, I wonder who protected them against oversight and regulation.
Maybe you could be more specific?
Clive,
Is it true you have three testicles?
To the person who thinks Obama has the media on his side, have you bothered to watch Fox News or listen to Limbaugh, Hannity or any of the other AM radio clowns?
And now there are anti-Obama preachers telling their flock whom to vote for ... Come on!
If McCain loses, it will be his fault, not the media's.
If nothing else, this campaign has shown McCain, my former hero circa 2000, to have become a whiner. It's sad.
Geege,
On televised broadcasts, what network besides Fox would you characterize as conservative? CNN? MSNBC? CBS? ABC? NBC? NPR? With respect to daily newspapers with some readership outside of their home city, what newspapers other than the NY Post and the Wall Street Journal are not liberal (the NY Sun having just closed down)? The NY Times? The Washington Post? The Boston Globe? The Chicago Tribune? The San Francisco Chronicle? USA Today? The LA Times? True, liberals barely exist on talk radio but how many people listen to that versus watch TV?
That said, I agree that McCain is losing because of his own failures to stick it to Obama in the debate. When Obama said that he was going to cut taxes for 95% of working people, why didn't McCain say, "How can you reduce taxes on 95% of working people when 40% don't pay taxes currently?" The opportunties to lay into Obama were plentiful and McCain chose not to engage. That's why McCain is losing, not because the MSM is composed almost entirely of cheerleaders for Obama.
This post sort of reads "bla, bla, bla, bla...if Pelosi had struck a bipartisan note, I bet the measure would have passed."
If you believe that, than why even bother mentioning anything else? In other words, everything else could be (and seems to be) true but is irrelevant if you believe that Pelosi's speech was ultimately to blame.
The old expression says that if you can't drink their liquor, eat their food, and screw their women and vote against them anyway you have no business being in Washington. The converse holds true as well. If you will abandon your principles and vote against what you actually agree with because somebody called you a naughty name you have no business being in Washington.
This is not a sudden new problem. We have been talking about the bad economy for the last 5 or 6 years. It is not a "recession of the mind" or some other silly nonsense spewed by aritocratic blind men. Memo to the mortgage and spend republican party - deficits matter.
Perhaps if there hadn't of been an additional trillion dollars of debt in the past few years competing for limited investment dollars we wouldn't be in this mess now.
The Republican leadership blamed Nancy Pelosi's stridently partisan speech recommending the measure for the strength of Republican opposition. On one level, this is a ridiculous complaint: in the end the Republicans are responsible for their own votes.
If people were supposed to ignore her speech, what was the point of her making it?
Barack John
Left and rights of passage
Black and whites of youth
Who can face the knowledge
that the truth is not the truth?
Obsolete Absolute
Ron Ralph
Cruising under your radar
Watching from the satellites
Take a page from the red book
and keep them in your sights
Red alert Red alert
USN