Author Archives: Julian O. Long

“Why the Bailout Sells America Short”

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Nomi Prins, a former Wall Streeter, has a good critique at Mother Jones of the bailout proposal as it was voted down yesterday. After summarizing the reasons why, in her view, the amended bill was not a good bill, Prins concludes:

The current financial crisis—and the debate over the bailout package—provided an opportunity to shine a light under the hood of the industry, remove its engine, and reinstall a more efficient one. It’s not likely that the 130 or so House Republicans who bucked their party leaders to vote against the bill are looking for the re-regulation of Big Finance. The 90 House Democrats who also voted against the bailout are probably more sympathetic to that approach. But for the moment—despite all the harrumphing from pundits and commentators about the bailout’s crash in the House—the opportunity to get it right (or, at least, better) remains.

But Prins has argued earlier that a better bill would have to include reregulation of the financial industry. So I’m not sure where her optimism about getting it “right (or, at least, better)” comes from. Read the whole critique here.

after the vote

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Here are some thoughts about the defeat of the Wall Street bailout.

  • I’m wondering what’s next. A large group of economists has written an open letter criticizing the bailout plan and saying it ought not to be enacted without serious debate and modification; though none of these, apparently, believes there is no crisis in the country. On its face, even as amended, the proposal seems to be a typical Bush power grab that the administration is trying to stampede the congress into approving without a fair debate.
  • I’m thinking the proposal is bad on the merits. The oversight provision puts in charge the same people who created the crisis in the first place. The limits on executive compensation leave in place all agreements presently in existence. The limits on how much of the $700 billion can be spent allow the President and the Secretary of the Treasury far too much discretion. And the proposal contains no provision to help struggling middle and working class people beyond suggesting a sort of noblesse oblige on the part of the Treasury Secretary.
  • Perhaps the proposal’s defeat might be an opportunity for Congress to draft a better proposal, though I can’t imagine this coming about in the present political climate, or with this President. Perhaps Congress might make the cosmetic limits and restraints on executive authority into real limits — the President can’t veto this thing, after all — but I don’t see that happening.
  • I’m thinking the congressional negotiators gave the President too much, but maybe what they settled for was the best they could do, and maybe the bailout needs to be passed given the gravity of the present crisis. The problem all along has been getting enough Republican votes to pass it as a bipartisan measure, though that seems very unlikely now.

As Paul Krugman sums up the impasse:

. . . [W]hat we now have is non-functional government in the face of a major crisis, because Congress includes a quorum of crazies and nobody trusts the White House an inch.

bailout fails

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All the news services have carried the story. The bipartisan bailout of the nation’s largest financial institutions has failed in the House of Representatives by 13 votes. According to CNN:

The measure need[ed] 218 votes for passage, but it came up 13 votes short of that target, as the final vote was 228 to 205 against. About 60% of Democrats voted for the measure, but less than a third of Republicans backed it.

John Carney, at ClusterStock, followed the vote as it developed and the stock market plummeted. House leaders held the question open for a short time hoping to persuade some members to change their votes.

Republicans supplied less votes than Democrats had expected, convincing Democrats to vote against the bailout bill so as not to put their seats at risk. Both parties [tried to negotiate] vote trading, with the Democrats arguing the Republicans should get at least 9 more of their members to vote “Yea,” bringing the Republican favorable votes up to signficiantly. At issue, many on the Hill believe, how many seats each party should put at risk by voting for this deeply unpopular bailout.

In the end, however, it was all for naught. During the voting, the DOW fell 700 points, finally closing down 777.68. Huffington Post calls the vote “an extraordinary gamble on the future of the global economy.”

According to the Associated Press, Barack Obama has called on the House to “get it done,” arguing that the country needs to avert crisis in the short term: “Democrats and Republicans in Washington have the responsibility to . . . make sure that the emergency rescue package is put forward that can at least stop the immediate problem we have.” Meanwhile, Republicans, who defeated the bailout, are blaming Nancy Pelosi.

I love it. Republicans with their feelings hurt! Though in fairness many Republicans apparently voted against the bailout because it violates their free market ideology, and I’m reading a deal of comments from like-minded folks, saying in effect: “Let the banks fail.” I’m guessing that Americans who are steadfastly opposed to the bailout think the crisis is being overblown in Washington. Apparently, President Bush has called a high level meeting to discuss what to do next, and John McCain is blaming Obama, having taken personal credit for the bailout bill before the vote failed.