The Senate's version of the bailout bill passed easily, 74-25. Senate Majority Leader Harry Reid cobbled together the bailout bill on top of the AMT fix and alternative energy tax credits -- talked about often enough here -- and kicked it through, with little opposition.
It's the ultimate Senate bill. Bloated. Perks for everybody. And pundits predict it's got enough of everything to make it through the House.
Why? Well, for starters, this bailout bill is a little too big to slick it through with pork and tax cuts. The bill should be stripped of all that garbage, and we should focus on the bailout. Crazy, I know.
For another thing, there are a few provisions in the bill that just aren't palatable. The alternative energy tax credits? Gives a boost to coal-to-liquid and tar sand developers, too. And let's not forget that those tax credits aren't offset in this bill. So - we throw hundreds of billions onto the banking crisis...and add more debt with the tax credits, without any increased revenue source to recoup our investments? With the built-in inequity of our tax code, working Americans will be stiffed with this bill. You and me. And our kids. And our grandkids.
And again, there's nothing in here to give homeowners concrete relief. And nothing in the bill to bring some regulation to bear on the problem. And nothing in the bill to bring revenue to the government from the same institutions we're bailing out.
The bailout bill has been a tangled mess ever since it appeared on the scene. It wasn't clear to we non-economists what it was supposed to fix; no one likes the bill, either in Congress, the administration, the financial world, or on this much-ballyhooed "Main St" we keep hearing out; and no one knows if it will work. It's a big payment, too. And we're told it's the only thing that will keep our economy from sinking into the toilet -- and they might be right, too.
In short, it's evoked anger, bewilderment, fear, and frustration for me over the past week or so. And, yes, I'm not angry at Obama, McCain, or Baucus for passing it through the Senate -- maybe a little dismayed they didn't take up some of the more practical, progressive suggestions.
We'll see what happens to this bill in the House. I'm guessing it goes through, and we're done.
Kevin Drum, on the opposition to the bailout bill:
The original opposition, after all, probably didn't reflect widespread sentiment so much as it did a narrow slice of highly motivated talk radio and Lou Dobbs fans.
I'm scheduled to appear on CNN at 3:30pm EST to discuss the House's extraordinary vote to reject the $700 billion Wall Street bailout. What I'm going to say is pretty simple: it's clear that Congress is facing a full on revolt from both the Right and Left - the very revolt that I predicted in my book, The Uprising. No longer is this a populist revolt merely scaring Wall Street and Washington - this is a populist revolt that has, to quote Markos, crashed the gate, and it represents a real victory for the progressive movement and voices who said Hell No.
You know, I understand why Drum wants to push all the opponents of the bailout bill into a corner and pretend that they're a mass of idiotic automatons: he's genuinely concerned about the effects of not passing some sort of relief, and quickly, to the country's banking system. But, really, given the outrage spurred by this bill, and the pressure put on Congress by its constituents all week, I think that's a tad naive. Sirota, I think, is closer to the truth. Personally I've never seen a U.S. political coalition like the opposition to the bailout bill before, one that spans all ideologies and political parties.
Chris Bowers has an eloquent defense of those, like himself, who opposed the bailout bill as it stood on Monday:
You didn't lose because your opponents are dumb. You lost because you failed to convince enough people you were right. That is actually a failing on your part, not of your opponents. In this specific case, it is a massive failing on the part of the people who supported the bailout. They had both presidential candidates, the leadership of both parties in both branches of Congress, virtually the entire national media, and all of the moneyed interests in their corner, and they still couldn't convince a majority of either the public or congressional backbenchers that it was a good idea. If you ask me, that is actually pretty frackin' pathetic. Some might even wonder if there is a fundamental stupidity at the core of this proposal if, with virtually all the levers of public influence supporting it, the majority of the country still thinks it is a bad idea.
That's not to say some form of legislation aiding the finance industry isn't warranted. Drum:
Our real problem is in the credit markets, and the credit markets are blinking fire engine red right now. Overnight bank lending rates have skyrocketed. Municipal bond markets have cratered. The two biggest providers of short-term credit to restaurant franchises, GE Capital and Bank of America, have exited the market. Rates on overnight commercial paper are up two points. This stuff doesn't hit you or me in the pocketbook immediately, but it does eventually as spending drops, companies can't get financing, and jobs get cut.
I know Obama's leading all the polls right now and, as a result, is averse to risk-taking, but he's ideally positioned to push for a bailout bill that's more friendly to the rest of us. Right now the media's not covering any of the proposed alternatives to the Paulson plan; Obama's support for, say, a progressive bill, the media would be forced to cover it, and Obama could cruise down the homestretch as the champion of everyday Americans during the present banking crisis. It's risky, though. Likely the punditocracy wouldn't go for it; they like it the way things are.
As you have heard, the bailout bill failed in the House.
The bickering starts. House Minority Leader John Boehner fires the first, and very absurd, salvo: it's Nancy Pelosi's fault! "'I do believe that we could have gotten there today had it not been for this partisan speech that the speaker gave on the floor of the House,' House Minority Leader John Boehner (R-Ohio) said, adding that Pelosi 'poisoned' the GOP conference." That's the mark of a true leader: when something goes wrong on your team, blame...someone else?
Barney Frank fires back:
"And because somebody hurt their feelings, they decide to punish the country."
The market reacted and the Dow dropped 778 points, "knocking out approximately $1.2 trillion in market value" -- the first day ever the market lost that much value.
I know some folks are disappointed that the bailout bill failed today, but I have to say, this is the way our political system is supposed to work. That is, responsive. As Nate Silver demonstrates, it was the swing district House Representatives -- both Republican and Democratic -- that sunk the bill. And the political cost of being an ardent backer of the bill is high; just ask Mitch McConnell, who finds himself in a "free-for-all in the polls" and could very well see his seat turn over to his challenger, Bruce Lunsford.
Looks like that cap for executive compensation was toothless: "The plan ostensibly prohibits golden parachute payments to CEOs and other "C-level" execs at bailed-out companies. However, it really only prevents payments on severance deals that are struck AFTER the bailout (specifically, it prohibits these deals completely). There is nothing about cancelling the severance payments that the executives are ALREADY contractually entitled to. What this means in practice is that bailed-out companies will have trouble hiring the best talent...because why would you work at Bailed Out Company A when you could go across the street and get a fat severance deal? It also doesn't mean the companies can't pay their CEOs $500 million a year."
Some folks see the failed bailout bill as an opportunity to reconsider, and then do it right. Kossak Meteor Blades agrees, and has a roundup of what some liberal economists are suggesting. Here's MB's advice for the Congressional Democrats: "None of those alternatives may succeed in getting the necessary votes. But one of the problems with what the Democratic leadership does on so many occasions is compromise first (which often means capitulate), then vote. It's not the losses that are irksome, it's the unwillingness to put up a solid proposal, then fight for it. As if the voters will be upset with them for being uncooperative.
"If they would put a fight, a real fight, and then lose, they would have a perfect argument when they went to the voters. They could say: "Look, first we tried to get the best possible deal. The Republicans shot it down. So then we compromised, and they shot that down. So finally we gave in because something had to be done. But you see who the problem is here, right?"
Nouriel Roubini opines that we should be following the action during the Scandanavian banking crisis: "In the Scandinavian banking crises (Sweden, Norway, Finland) that are a model of how a banking crisis should be resolved there was not government purchase of bad assets; most of the recapitalization occurred through various injections of public capital in the banking system. Purchase of toxic assets instead - in most cases in which it was used - made the fiscal cost of the crisis much higher and expensive (as in Japan and Mexico)."
Roubini offers this little parting jab: "This is again a case of privatizing the gains and socializing the losses; a bailout and socialism for the rich, the well-connected and Wall Street. And it is a scandal that even Congressional Democrats have fallen for this Treasury scam that does little to resolve the debt burden of millions of distressed home owners."
I like the way MarkT thinks: "A couple of ideas are out there, but not seriously considered. They have to do with making the people caused the mess clean it up. One would be a surtax on high income taxpayers to pay for the bailout. The second idea is a small tax, say a quarter percent (.0025) on all stock transactions. It would raise about $150 billion per year, and would make Wall Street pay for Wall Street's problems."
And finally Kevin Drum: "An awful lot of people really, really still don't get it. I swear, if I hear one more blogger or pundit suggesting that maybe it's actually a good thing the bailout bill failed because now we have a chance to pass an even better bill, I'm going to scream."
There's a bailout deal on the table. It includes oversight, caps for executive compensation, and equity appreciation. (The Chicago Sun Times has a handy summary of the bill online.)
For homeowners, the deal is not so sweet. Yes, the government will purchase some troubled mortgages, effectively lessening pressure to foreclose; yes, the plan includes a program to assist troubled homeowners; but the bill did not give bankruptcy judges the power to "modify a troubled borrower's primary mortgage," which means it will still be difficult for homeowners to restructure their mortgages.
In short, between the price tag and unprecedented powers given to the administration and the failure of Congress to discuss alternatives, there's something in this bill that everybody dislikes. The bill's fate in the House is unsure, despite leadership from both parties signing on to the deal.
This bailout's mission is to protect the obscene amount of wealth that has been accumulated in the last eight years. It's to protect the top shareholders who own and control corporate America. It's to make sure their yachts and mansions and "way of life" go uninterrupted while the rest of America suffers and struggles to pay the bills. Let the rich suffer for once. Let them pay for the bailout. We are spending 400 million dollars a day on the war in Iraq. Let them end the war immediately and save us all another half-trillion dollars!
I don't think our Congress has faced a more important decision than whether or not to pass the bailout bill in decades, perhaps longer. (Summary here; CBO analysis here.) To state what is beyond obvious: it is incredibly important to set aside our preconceptions, whatever they may be, and really think hard about whether to support this bill or not. If you're easily alarmed by predictions of disaster, think long and hard about how long it will take to pay this off. If you're inclined to think that experts telling you that you need to fork over large sums of money are necessarily wrong, go back and listen to the audio clips near the end of my last post. Look at the graphs and the pictures. Think hard.
The costs of being wrong, in either direction, are staggering. This is not a time to leap to conclusions....
For my part, I support it. There are a lot of people who I respect who are genuinely worried that we might be on the brink of a serious depression, and who think this would help avert or mitigate it. But I hate this.
Okay, so I didn't intend to keep writing about this bailout bill. But here I am. I blame the fact that just about everybody out there seems to be freaking out over this thing. Seven hundred billion dollars! Or is it eight hundred billion? Or a trillion?
The financial services industry, which has spent billions on lobbying and campaign contributions over the last decade, is scrambling to make its case for a proposed $700 billion bailout plan amid deep public skepticism.
Wall Street firms, commercial banks and insurers are lobbying on an array of issues - from beating back proposals to make it easier to reduce mortgage debts in bankruptcy courts to fighting, unsuccessfully so far, to retain control over executive pay.
You think the current deregulatory market and recent obsequiousness from both parties towards the financial industry has anything to do with lobbyists? You bet it does!
And finally, a bit of wisdom from Paul Krugman on the Bush administration's sudden reliance on "price discovery" as a basis to support this bill:
But there's another possible explanation, which I find terrifyingly plausible: the plan came first, and all this stuff about price discovery is an after-the-fact rationalization, invented when people started asking questions.
It has seemed very strange to me that such a supposedly crucial economic program would be based on such an exotic argument. My sneaking suspicion is that they started with a determination to throw money at the financial industry, and everything else is just an excuse.
Man, the more I hear about this bailout bill, the less I like it, and the less I'd like to see something written up and passed by Monday, even if it does include the demands from the Democratic leadership.
Chris Bowers, too, is "suspicious" of the crisis. He wonders at the timing of the crisis, at the fact that this bill was written months ago, that financially secure firms are included in the bailout, and at the specific amount of the bailout. He also distrusts Paulson.
(And why not? Besides being a member of the Bush administration, Paulson's also got a lot of history and buddies on Wall Street, and he stands to benefit mightily from the bailout.)
