Glenden BrownDeer Meet Headlights
I’ve been trying to get a handle on today’s events. Based on what I’m reading, I think most people are a bit in shock.
Here’s what happened:
The bailout failed to pass the House.
The Dow crashed 777.68 points.
I don’t think anyone really has any idea what to do now.
House Republicans had a crazy ass plan (TM) that they never pretended would work - it was an empty political stunt. They put it out so they could have a talking point, a sort of, “Well we proposed something better but the Democratic majority forced something else through.” Now they either have to fight for the aforementioned crazy ass plan or abandon it. I’m not betting on either option.
Progressives want time to draft something sensible and have not had time as the Administration has been stampeding this monstrosity forward. A progressive plan required some hard work and time to pull together the disparate pieces. Now progressives have time but can they create a plan that could actually pass? Seems unlikely.
Bush and his administration really never had a plan or idea beyond, “Quick throw money at it and hope it goes away.” Given that they had no plan, no idea, and no clue, I’m not expecting anything worthwhile from them.
Pelosi and Reid negotiated in good faith, hoping to get a better than worse bill on the table. They really wanted to address the problem and knew that doing so would mean producing a bill the idiot president could scrawl his name on and one congressional Republicans would back. With the bailout bill’s defeat, they both need some time to regroup and examine the options.
It failed for lots of reasons, both good and bad. It failed for lack of courage, lack of understanding. It failed because Democrats gave up too much to keep the Democratic party together. It failed because Republicans played a cynical opportunist game of trying to force the Dems to shoulder the blame for an unpopular bill.
Robert Kuttner at the American Prospect makes the point that the moment for this form of a bailout has probably passed, and now:
People in both parties are now talking about some variation on Roosevelt’s Reconstruction Finance Corporation, in which the government gets an equity stake in an enterprise that it bails out. But the Republican version is likely to be more of a giveaway to Wall Street — mocking the right’s rhetoric. As I have been arguing, the entire Paulson approach was flawed. The Democrats were mistaken to try to add some bells and whistles to a concept that was bad at its core.
The Democrats should write a bill that includes:
* An RFC-style agency to have the government take over or take major equity positions in failing banks.
* Direct refinancing of threatened mortgages, on the model of Roosevelt’s Home Owners Loan Corporation
* Extension of FDIC guarantees — and standards — to other financial institutions, with government takeover if they fail.
* A small transfer tax on financial trades to pay for a lot of the cost of recapitalizing Wall Street.
But for now, government and industry are a bit baffled. Something happened no one expected and now they’ve got to come up with something new.
Months ago, in a great post at Orcinus, Sara Robinson argued that we are at a major saeculum - a turning point in history. The systems have broken down and what used to be reliable has become unreliable. Outcomes that could be predicted have become unpredictable.
Now we have to figure out new rules on how to make things work. And nobody is really sure what that looks like.
September 29th, 2008 at 3:24 pm
The immediate problem is not a falling stock market. The immediate problem is the seizing up of credit markets. This cannot be allowed to last until after the election. Therefore there will have to be some scaled down, short-term fix, and soon.
September 29th, 2008 at 3:51 pm
Leo - I agree. The falling Dow is nothing more than a symbol of the problems in the financial markets - but it is a potent, easily understood symbol.
I also agree we’ll see some form of short term 120 day fix that is designed to keep things afloat while real legislation (with real regulation) is hammered out.
September 29th, 2008 at 4:29 pm
How do you “sensible” F****** bankrupt?
Difference now and then(FDR and the 30’s) is most people lived on their land and had extended families, so that softened the blow. Now people live in deserts on postage stamps, or in dysfunctional cities.
Should be interesting. This is just the beginning. What will prop up the dollar in this ongoing scenario, printing more money out of thin air?
I don’t know about you, but selling that no load state Utah to a flush cash buyer is starting to look real good.
September 29th, 2008 at 4:49 pm
“Something happened no one expected and now they’ve got to come up with something new”.
Keep posting social pieces Glendon, you do that best.
Most in the know are wondering how it hasn’t happened sooner.
Things economically tend to work when the players,
a) have money.
b) have money.
c) have money.
d) or….have something to sell people want.
Don’t you have those whistlers for deer on your car? They are something like a savings account.
September 29th, 2008 at 5:12 pm
I heard an audio of George W. Bush from a while ago, specifically naming Fannie and Freddie and saying they should make sure low income people can get nice houses. He was right in the middle of this scam, but I guess you’re only going to hear it on the internet.
September 29th, 2008 at 6:10 pm
The fact that the Dow dropped less than 7% is proof that there is plenty of liquidity in the market.
Just watch. In the next few days, a market will develop for bad paper, and investors will swoop in like vultures and buy the ‘toxic’ mortgage backed securities for pennies on the dollar.
With any luck, we will have stabilization by the end of Yom Kipper (granted with marginally higher interst rates) which outcome will suggest that the administration has once again attempted to soak the American taxpayer with the help of the spineless dems.
September 29th, 2008 at 6:17 pm
Yeah buddy, and for those with a clue, Cui Bono?
The admin is just marching on orders, remember? Or not (remember?), it is so much easier to ignore it, ski and surf, AMuchAP, and die in an accident. Or watch daytime television.
So who do you know that is building a bad paper federally backed bi-partisan little people schtuping company to dummy up the bad paper business?
September 29th, 2008 at 8:01 pm
Watch the credit markets.
See this link.
We are in uncharted waters, the storm looks very threatening, and there is no one at the helm, or rather the crew is fighting over it. Good luck, ship of state.
September 30th, 2008 at 11:29 am
I think it’s a good sign that the market is falling. This is how “free” markets work. People do stupid things and the market has to correct itself. Before it can do that, people have to realize that there’s a problem to fix. The market is now signaling that, and now the market will fix itself. Bankers and investors are going to stop doing such risky lending and investing. They’re being corrected. This is happening already without government intervention. A lot of this wouldn’t have happened if government hadn’t kept interest rates so low for so long. It’s amazing how a market made up of so many people who don’t know each other can correct itself so well. Just give it some time. Things might get a little scary, but they have to for people to realize they’ve been taking on too much risk. Thanks for your thoughts Glenden.