On Monday the mortal foes of right-wing Republicans and lefty Democrats came together to sink President Bush’s bailout bill. The result of this once-in-a-lifetime cosmic event? The stock market plummeted. Economies worldwide shuddered. And American voters collectively scratched their heads. So, to help you wade through the economic and political rubble, here’s a bloggy round-up of what happened and what’s next.
First, a quick glance at the blame game. Here’s Josh Marshall at TPM:
There's a lot of talk out there from commentators who you'd think would know better claiming that this was basically a bipartisan failure -- that both parties, Republicans and Democrats, failed to carry their members for this bill.
But look at the numbers. 60% of Democrats in the House voted for this bill. 33% of Republicans. Face it, that's not even close.
Both parties wanted to force as few members to vote for this as possible. It's really unpopular. It's perfectly legitimate (though in the absence of any credible alternative, pretty iffy) to argue that the Republicans did the right thing by killing the bill. But there's simply no question of why and how this bill failed.
1) The Mike Pence doctrinaires who welcome a free market curative like a Depression for our current woes. I guess they view it as sort of the economic equivalent of that stuff you drink the night before a colonoscopy. As misguided as Pence and his minions are, they at least have a certain nobility complementing their foolishness. I would be remiss if I didn't note that a significant subdivision of the Pence camp rejects the counsel of virtually everyone who knows anything about economics and instead believes that our current situation isn't so dire. Call it conservative magical thinking.
2) A bunch of other Republicans who would have voted for the Paulson Plan had Nancy Pelosi not said some stuff that hurt their feelings just prior to the roll call. They had thought passing the Paulson Plan was an urgent national priority. Then, the Speaker said some stuff that made personal pique take priority. Outdumbing the Pence Republicans was a tall task--this coterie of GOP representatives was up to the task.
As for how things look now. Here’s the Atlantic’s Marc Ambinder on the state of things, post-bailout blow-up:
Cost to taxpayers: $1 trillion.
And Mother Jones’ Kevin Drum emerged from a “debilitating combination of fury and despair” for this prophesy:
Do you know the old saying about credit? "It's like oxygen. You don't know how much you need it until it's gone." We're about to go into financial hypoxia, and it's not the millionaires who are going to suffer most from this.
Back to Barnett, who fleshes it out more.
Here's what's been lost in the debate while people on both the right and left have offered ignorant jeremiads about "bailing out Wall Street." If the economy tilts into a deep recession or even a depression, it's not the wealthy or even Barack Obama's cherished middle class who will pay the deepest price. In any such circumstance, it's the people on the economic margins who get hurt the most. The ones without a nest-egg and without a 401(k) are the ones who have no safety net when they lose their jobs and health insurance. If unemployment goes from 6 percent to 10 percent, it won't be the investment bankers who start heating their homes at 56 degrees in January. Populist rhetoric is almost always misguided. That has never been more the case than over the past week.
And now for the look ahead to what’s next. Robert Reich hypothesizes at Politico’s Arena:
What will emerge from all this? My Prediction is a much scaled-down bill, enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Congress will allow Treasury to use the money to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks or stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.
The question is whether this less-than-hoped-for first installment will calm jittery markets, both in the United States and around the world. It's very hard to say, because so much of what's going on is psychological rather than purely economic. We're dealing with the mass psychology of investors and the mass psychology of voters -- and both groups are extremely unhappy right now, to say the least.
Matt Yglesias on what should be next:
Isn’t the most likely scenario that as the House takes the day off for the Jewish Holiday, the GOP leadership rounds up ten new votes from safe incumbents that are then routinely matched by ten new Democratic votes and basically the same thing that failed on Monday passes on Wednesday? The House conservatives who killed the bill have no plan B so I have a hard time seeing them staying firm. In the interim, folks should be exploring the possibility of writing a bill that could pass the house with exclusively progressive votes, since the progressive side does have a plan B. But it seems unlikely that it’ll actually come to that.
And finally, Ezra Klein looks even further ahead to how any bailout will affect the next president’s agenda. The prevailing wisdom is that the next guy will be hobbled by the bailout’s cost. Ezra’s not buying it. If anything kneecaps McCain or Obama, it will be politics, not economics:
When natural economic demand slackens, the need for public investment to kickstart the economy increases. Meanwhile, short-term problems do not obviate long-term threats. The looming dangers posed by health costs, global warming, etc, will not pause to politely wait out our recession. Most everyone knows that. But there's no doubt that if Obama -- or McCain -- is elected, that House Republicans and others opposed to action on these issues will pretend that the bailout somehow extinguishes our ability to act, and reduces the urgency of the problems. They will be lying.