RIP Bailout... Now What?

Today, the House voted 205-228 against the "bailout bill," otherwise known by the ominous name of the Emergency Economic Stabilization Act of 2008. My guess is that, just like Barack Obama said today, they'll come up with something soon that will pass. It will probably be a "temporary" solution that will have roughly half the pricetag, and this will somehow be seen as a good middle ground by the American people.

Ignored will be the fundamental moral and practical reasons why any bailout is wrong, but because no one seems to pay attention to principles anymore, the pragmatic view will be, "Oh, $350B isn't that much. What a great compromise!"

One of the more interesting side issues in this whole affair has been the overwhelmingly negative public response to the proposed bailout, and not only that, but that the politicians responded to it. I was preparing a post today where I was planning on arguing that Congress would pass the bill regardless of public opinion, and that this would put a spotlight on the blatant power-grabbing nature of it; this as opposed to some supposedly noble attempt at "fixing" the economy because they know better than us.

Because the House surprisingly failed to pass the Emergency Economic Stabilization Act of 2008, and because three quarters of the American people opposed it, does this mean they were all motivated by the right reasons? I don't think so. The most common refrain from the "No Bailout" side has been that people don't want to reward the greedy Wall Street tycoons; not that government intervention is bad per se, just that this particular intervention is bad. Very few have identified the insidious nature of nationalizing significant chunks of the economy, or the terrible violation of individual and property rights that a trillion dollar redistribution scheme would represent.

Driven by fear for their jobs, the politicians listened to the angry word on the street, and acted in accordance. From the Wall Street Journal:
For rank and file lawmakers, the vote forced upon them produced anger and soul-searching about the economic and political costs of the bailout, and a difficult choice: whether to safely vote no on an issue unpopular with voters or swing behind a measure the nation's top economic leaders insist is needed to avoid a recession.

And across the Capitol, there was an overwhelming sense that decisions made on the plan would be career defining. "There is no extra courage to go around," said Rep. Jim Cooper (D., Tenn.).

Many lawmakers said they weren't willing to go out on a limb. Rep. Lynn Woolsey (D., Calif.) said there still were "major questions unanswered" about the need for bailout. She said Wall Street isn't beinb asked to pony up enough to fund the rescue, and voiced doubts about whether the Bush administration—which engineered a series of earlier market interventions, including the takeover of Fannie Mae and Freddie Mac – should be trusted this go-around. [emphasis added]

Decisions made on the plan could be not only career defining, but career ending. The pols are scared out of their minds, afraid of losing their jobs in 5 weeks, but the only thing they have to fall back on is "which pressure group has the most pull?"

And take note of one part of the quote from Rep. Lynn Woolsey (D., Calif.), when she said, "Wall Street isn't being asked to pony up enough to fund the rescue." How is this even a meaningful group of words? Wall Street should "pony up" money to "fund the rescue?" Implied in this tortured reasoning is that it is the government's proper role to identify that a rescue of otherwise private institutions is both necessary and proper, and that the problem is that Wall Street isn't being forced to kick in more dough. This anti-individual rights, concrete-bound, pragmatic, and "screw the rich bastards because they're an easy target in the similarly concrete-bound minds of the public" mentality is a perfect encapsulation of our current political climate.

Thus, because the bill was narrowly defeated based on nothing but fear -- and assuming that a repeat vote will fail narrowly for the same reason -- I predict that Barney Frank, Nancy Pelosi, and a grovelling Hank Paulson will get together and craft a bill that is half the size of this one, the American people will sigh in relief that "fiscally responsible" heads have prevailed, and we'll have a slimmer, trimmer nationaliza... er... bailou... er... Emergency Economic Stabilization Act by the beginning of next week.


Rick "Doc" MacDonald said...

I agree with just about everything you say here and documented similar sentiments on my own blog.

After it was announced that the bailout bill was dead, proof of the fear and pressure representative are feeling was expressed by a Republican who pointed out that as the vote was being made, the Republicans noted that none of the Democratic leadership and not one of the Democrats who's seat is in danger voted FOR the bill. They all voted against it.

If the Dems wanted this bill, they could have voted for it as a bloc and it would have been done. They know they will pay for that sort of unilateral action and want a similar number of Republicans to go along with them. In essence, they are telling the people that they are more concerned about keeping power than they are in doing the people's business.

Need proof? They are going into recess for the Jewish holidays. In the mean time, we have troops who will be wounded or killed not being afforded the luxury of a day off. Where's the leadership in the face of that fact?

Speaking of leadership: If John McCain were a true fiscal, free market, Federalist, he would have come to Washington not to work for the bill, but to work against it as it was written. After failure, he would have then been in a position to offer a more free market, less socialist alternative. A lost opportunity that may well cost him the Presidency and subject us all to "Life Soviet Style".

Rick "Doc" MacDonald said...

last para: If John McCain were a true fiscal conservative, free market defender and a Federalist...

I have been typing like a demon today and I apologize for all of my errors...

Kendall J said...

You're right. It's not over. Any sort of measure here, coupled with the fascist way Paulson has been seizing assets stands to plunge this country head-long into a depression. The U.S. will see capital flight like it's never experienced.

If the bill passes, send your money overseas. China may be a better investment than the U.S.

C. August said...

Doc, thanks for the comment. I read your posts, and it looks like we went through the same cycle of thought yesterday -- from "Yes! The bailout was defeated! Maybe there are some principled people in Washington after all." to "Damn, it's just politics as usual."

And I agree with your assessment of McCain. He is not a fiscal conservative in any sense. This whole crisis would be a great opportunity for leadership, but there are no principled leaders or thinkers in Washington, as they have rejected the ideas that would properly guide them.

And Kendall, the capital flight issue is a scary one, and it's possible that China would be a better investment. In a related note, Gus Van Horn linked to an article suggesting that Russia should move to a gold standard to protect itself from America's massive debt and inherently worthless paper money.

Anonymous said...

"because no one seems to pay attention to principles anymore, the pragmatic view will be, 'Oh, $350B isn't that much. What a great compromise!' "

I think I will use this strategy the next time I ask for a raise. I'll start out asking for $700 Billion and when they say 'no' I'll let them talk me down to $350 Billion. GENIUS!

C. August said...

Great idea! Your own personal Emergency Economic Stabilization Act. The key will be to convince them that you're too big to fail.

Rick "Doc" MacDonald said...

LOL ... I'm sure a good capitalist can eat his or her way to become too big to fail. We aren't called "fat cats" for nothing. :-)