Wednesday, October 01, 2008

OK ... Who screwed up on the bailout bill?

Let's make a list....

But first, note well: The big problem with Monday's Congressional fiasco was not that a bill that may or may not have been particularly good at addressing the problems of the financial system didn't pass.

The big problem is that in the midst of a world-wide financial crisis, in a "the entire world is watching moment", America's leaders -- yes, the political leaders of the free world, and economic leaders of the world capitalist system -- showed both that they had no idea what the hell they were doing, and could be counted upon to screw up doing it.

As a direct result of the unhappy surprise they produced, in the middle of Monday night, when I started writing this, all around the world there were markets falling and banks failing -- to the great personal and financial discomfort and cost of governmental and business leaders around the globe.

What effect will this have on the willingness of the rest of world to trust and follow the US's leaders in the future? This is no small issue!

Consider how the US now relies on the rest of the world to finance its perpetual fiscal deficit (on course to soon rise to alarming proportions) and perpetual trade deficit. The only reason the rest of the world is willing to do this is because it has faith in the value of the ever-growing number of dollars and dollar-denominated investments it receives in the process -- that value being protected by the sound judgment of America's political and economic leaders.

Should the rest of the world come to a new opinion about this -- come to think that the value of its dollar holdings and investments is being placed at jeopardy by inept American political Bozos interested only in highly-partisan, short-term, local political advantage ... the result could prove very unhappy for everyone world-wide, for the US most of all.

But enough of that. Let's look at who screwed up -- and who we hope will find a way to publicly make amends soon. Here's a list running down the length of my clipboard....

#1 with a bullet!) Paulson, Bernanke and Bush -- for their "$700 Billion Bailout at Taxpayer Expense". How the heck was that supposed to play to the citizenry? Especially in conservative "read my lips, no tax increase ever" Republican electoral districts?

Over and over we can read news reports and polls of how this "taxpayer funded bailout" is so unpopular with voting taxpayers. Which of course means that every Congressman facing a close election next month would vote against it.

Most lawmakers had been deluged with calls and e-mail from voters angry that, as they see it, taxpayer dollars would be used to bail out Wall Street fat cats. [CSM]
Eighteen of the 21 most vulnerable Republicans up for re-election, and 10 of the 15 Democrats in the closest races, voted against the $700 billion financial rescue, illustrating the political hazards of bailing out Wall Street without offering an equally generous hand to taxpayers.

Wisconsin first-term Democratic Rep. Steve Kagen was among the dissenters... Mr. Kagen's Republican challenger, John Gard, had already begun running ads calling the plan a "bailout to Wall Street billionaires." The ad said: "They break the rules and Congress hands them your money."

Democratic aides acknowledged that, in many cases, members who voted against the legislation were swayed by a popular outcry that the plan would help wealthy, sophisticated people at the expense of regular taxpayers... [WSJ]
The bulk of which was the result of Paulson/Bernanke/Bush public relations bungling. Most of this perception was totally avoidable, even while being honest about things!

First, the plan had no tax cost up front, and not necessarily any taxpayer expense in the long run. The "bailout" actually was an asset purchase -- an investment. CBO stated the actual effect on the deficit would be far less than whatever nominal "bailout" amount was spent, because of the value of the securities received in return. The Treasury might even have made a profit on them in the end. Or perhaps not, but with 90+% of mortgages paying off normally even now, there was no way that anything close to the full amount spent on them, $700 billion or whatever, ever would have been a loss to taxpayers.

Second, that "$700 billion" wasn't even a real number. "We just wanted to choose a really large number," the Treasury told Forbes, you know, to impress that they meant business. Well, they succeeded!

Politicians usually deceitfully hide and diminish the cost to taxpayers of whatever they are doing. Paulson and Bernanke exaggerated it -- and let voters believe all that cost they were going to collect would go to the fat cat rich as well.

Hey, the auto industry knows how to sell a bailout as "an investment by the government that saves American jobs" -- so convincingly that right now each party is competing to give it more than the other! One would think the designers of the financial bailout might have consulted with such experts.

Perhaps it is understandable that Paulson, as a Wall Street semi-billionaire, and Bernanke, an Ivy League professor, would have political tin ears as to how a "$700 billion taxpayer-funded bailout" would play among the working-class masses -- not forgivable, considering their jobs, but understandable.

But what excuse is there for Bush and all the political mavens on the White House staff? Shouldn't somebody there have told Paulson and Bernanke, "If that's your plan, OK -- but try not make it sound like you're sending out a $700 billion tax bill for it." Eh?

Yes, the Bush presidency is in the doldrum days of lame-duckism, and most of its competent people may already have left for home. But couldn't Bush himself have told them this?

(Why does presidential leadership have to pass straight from the like of "Too-slick-by-half Willie" to that of "Sand-in-the-gears Dubya"? Is there no happy median?)

#2) The Joint Congressional Leadership -- for not being able to count. The first rule of holding a parliamentary vote -- whether it's of an apartment building co-op board, PTA, or chess club -- is that you don't call a vote until after you know both what the result will be and what you will do immediately after the result is announced.

It wouldn't particularly have mattered to the world if this vote had been delayed, and the proposal been held up for a while for re-working while more votes for it were collected. Nor even if the vote had been held and the plan defeated, with the White House and Congressional leaders promptly then announcing that they were moving right along to a prepared and credible Plan B.

But to have the whole thing blow up in their collective face as a surprise, with them all standing around afterward dazed, clearly having no idea what to do next (other than blame each other) ... the whole world wonders, "WTF?"

Now, to consider the separate party leaderships ... gee, who to mention first?

#2A) The Democratic leadership -- because they control the House and can pass whatever they want. And when you are the Speaker of the House, you have final responsibility for what happens in it.

As Speaker, Nancy Pelosi could have put the arm on her members to pass the bill all by themselves because it was, you know, the right thing to do, good for the country, which is why she voted for it herself personally, as she'll tell you.

But instead she decided to play the old political game of letting as many of her own members as possible vote against it (see "all motions of no confidence fail by one vote") because it was so unpopular.

Stacey Farnen Bernards, a spokeswoman for House Majority Leader Steny H. Hoyer, D-Md., said he and Pelosi did not press harder because they viewed the issue as a "vote of conscience," not a matter of party discipline. "They weren't going to aggressively twist arms on such and important vote," she said. [LAT]
Yes, because it was so important, she didn't twist arms. That makes sense! If the important thing is to save your own members the discomfort of making an unpopular vote by making up the difference in votes needed to pass the bill with just enough votes from the other party.

"... we were supposed to deliver 125 votes, They were supposed to deliver 100 votes." -- Democratic caucus leader Rahm Emanuel. [WSJ]
OK, that's a time-honored legislative ploy. But then Pelosi added her own unique twist to it. Before the vote she stood up and gave a speech gratutiously savaging the other party and its very voters upon whom she was counting, blaming them for the whole mess. And golly gee, a few of them -- who didn't want to vote for this bill any more than did Nancy's people who were getting a "pass" -- got peeved and reconsidered the deal.

Smart tactical move, Nancy. Make a deal with the other side for them to deliver votes, then attack them over it before they deliver!

And a sterling example of national political leadership too. The virtues of political bipartisanship often are exaggerated (typically by the "out" party that's not getting enough from the "in".) But if there ever is a time for bipartisan behavior -- if only to the extent of restraining oneself momentarily from indulging in nasty partisan shots at every opportunity -- it is when trying to pass what in fact is a bipartisan bill while acting on an international stage.

Just as healthy families put aside their internal rifts and arguments to deal "as family" with outsiders, a healthy and effective national leadership will put aside its internal divisions -- or at least not go out of its way to highlight them! -- when performing before the eyes of rest of the world. To give at least the impression that there really is "effective national leadership". Which we just don't have.

#2B) The Republican leadership -- for delivering a 65-133 vote against their own Administration's urgent emergency policy. In front of the whole world. 'Nuff said right there ... except that then they went on to whine about how they lost votes because of those mean things Pelosi said about them.

"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.
So ... Republican party leaders now lose Republican votes because of things Democrats say in speeches. That's a formula for future political success!

As Barney Frank said afterward: "Because somebody hurt their feelings, they decided to punish the country?"

Barney has half a point in that, though it's a weak defense of Pelosi. This is a case of "a pox on both their houses". Pelosi showed no brains and little character in attacking the Republicans before the vote, at the risk of provoking them into bolting into changing their votes. The Republicans showed less character by being provoked and bolting.

(And, you know, considering Barney's personal record, I'd bet that conservative Republicans could speechify a few things about him that would 'hurt his feelings' sufficiently to have him storm out and cost them his vote in a bipartisan motion. Don't you think?)

#3) The Congressional rank-and-file membership of both parties -- for being weasel, game-playing hypocrites. I mentioned that this legislation was unpopular (point #1), right? Well, Norm Schieber put it this way....

"My sense of what happened is this: There were a healthy majority of congressmen who wanted the bill to pass, but many of them (most of them?) also wanted to be on record voting against it, for obvious political reasons.

So you got a classic prisoners' dilemma situation: Everyone's best-case scenario was to vote against the bill and have everyone else vote for it. Unfortunately, as anyone who's taken introductory micro knows, that usually leads to the worst-case scenario, where everyone defects and the whole venture collapses.

That's not mere theorizing. To quote Representative Paul Ryan (R-WI):

"We're all worried about losing our jobs. Most of us say, 'I want this thing to pass, but I want you to vote for it not me.' " [NYT]
Perhaps you still believe the "profiles in courage" model of representative government they teach in junior high? That we elect responsible representatives to act on our behalf who sit, collect the facts, ponder, and then vote for what they believe to be the best policy for the nation. If so, fuhgetaboutit.

This is all another fine example of's "First Law of Elective Politics": that every elected politician truly and sincerely, deep in his or her heart, desires to do what is best for the national welfare as a second priority -- the first priority being to get oneself elected and one's party in power, whatever hypocritical or scabrous behavior is required, the second priority be damned. Because after all, if one doesn't get elected and gain power, one can't do anything at all to improve the national welfare. QED.

4) Greedy rank-and-file politicians who see a political Christmas tree in every emergency. Republicans tried to attach a capital gains tax cut to the bailout, supposedly to encourage banks to sell mortgage securities (on which they have losses!) ... Sen. Bernie Sanders of Vermont wanted to add a 10% surtax on "the rich" ... Members of the Congressional Black Caucus complained the legislation didn't include sufficient help for people struggling to pay for food and health care... [WSJ]

I could go on and on....

5) The average Amercian voter ... No, this is too much, I'm depressed.

That's a lot of amends to make.

Better luck next try.