The House has rejected the bailout.
Two-thirds of House Republicans voted against it. The bigger surprise was that forty percent of House Democrats did. (See here.)
Goddamn fools and goddamn cowards. To hell with them all.
To win this election, Barack Obama needs to make it a referendum on George W. Bush. To win, John McCain needs to make it instead a referendum on Barack Obama. Obama made progress on his goal during the portion on the economy, but McCain made headway in return during the foreign policy portion. Call it a slight win for Obama that will probably have little impact on the race.
On Wednesday, the House approved a measure to make $25 billion worth of loans to automakers and suppliers, supposedly for the purpose of helping them retool their plants. The vote was 370-58. It appears likely that the Senate will quickly follow suit, and both Obama and (alas) McCain support the plan.
Despite the timing, the plan has nothing to do with the other bailout now under consideration on Capital Hill. Indeed, the Big Three have been pushing for federal aid at least since 2006, and the initial piece of legislation creating the loan plan scheme was passed last year. Throughout that time, the Big Three have steadfastly contended that the measure isn’t a bailout to prop up their poorly-run companies, because companies must repay the loans and because foreign-headquartered automakers with plants in the U.S. are also eligible for the funds.
The first argument has always been transparently asinine; under the plan the Big Three will get interest rates and terms far more favorable than anything they could get from private sources (even if the long-term capital markets were functioning, which they aren’t). Getting financial assistance from government when your credit is too poor to get decent rates from private lenders is surely a paradigm case of what constitutes a government bailout.
And as for the point that foreign companies (Toyota, Honda, etc.) can get low-rate loans too? Well, the authorizing legislation Congress passed last year mandates that loans can only be issued for plants that are more than twenty years old. It’s just coincidence, I’m sure, that there are very few foreign-owned auto plants in the U.S. more than twenty years old, but a lot of such plants owned by GM, Ford, and Chrysler.
It’s also just coincidence, I’m sure, that the measure passed the House and will pass the Senate as a rider to a continuing resolution that the President as a practical matter must sign in order for the federal government to keep functioning into next year.
Politico reports on how intransigence by House Republicans, cowardice by House Democrats, and petty political maneuvering by McCain and Obama led to a breakdown in the bailout talks today just as it appeared an agreement was at hand.
With this coming in the same evening as the announcement of the failure/sale of Washington Mutual, Friday could be a scary day on Wall Street. Not just an ugly day, but a scary day.
Yesterday I briefly discussed the argument that the bailout plan proposed by the Treasury violates the Non-Delegation doctrine. Well, today the AP is reporting that Congressional leaders have agreed on a plan that is quite different from Treasury's proposal. Among the changes are added limits on how much money the department can spend and when:
The tentative accord would give the Bush administration just a fraction of the $700 billion it had requested up front, with half the money subject to a congressional veto, congressional aides said. Under the plan, the Treasury secretary would get $250 billion immediately and could have an additional $100 billion if he certified it was needed. The last $350 billion could be blocked by a vote of Congress under the arrangement, designed to give lawmakers a stronger hand in controlling the unprecedented rescue.
So either Congressional leaders, and the many lawyers on their staffs, haven’t heard that the Supreme Court ruled that legislative vetoes are unconstitutional twenty-five years ago, or they know and just don’t care.
(Alright, we know it's the latter, as Congress has flouted Chadha any number of times since the decision was issued, but indulge my slightly ham-handed sarcasm.)
Of course, the problem with challenging the restriction (assuming the law that finally gets passed contains it) is finding a plaintiff with standing. As Congress will almost certainly never invoke the legislative veto provision because of political realities, the matter will likely never see the inside of a federal courtroom. Which is another thing I’m sure Congressional leaders know perfectly well.
This is one of those rare times when perhaps we should be grateful that most Americans have little understanding of how our economic system really works on a day-to-day basis. Because if everyone understood how close the American economy came to a meltdown last week, we might have an old-time, widepread panic on our hands.
If the financial system is the circulatory system of the American economy, then the market for short-term, high-quality debt is the economy’s heart. The most prominent form of this type of debt is commercial paper. Banks constantly trade massive amounts of commercial paper between themselves to finance their own lending to businesses and consumers, and very large companies with excellent credit ratings issue commercial paper to finance their day-to-day expenses (like meeting payroll). Much of this paper is bought by money-market funds, which investors large and small invest in. Usually, this system works well for all parties involved. Money-market funds, and their investors, get a higher return than they would from investing in instruments like U.S. Treasury notes while still putting their money in very safe places, Big borrowers get to finance their short-term capital needs more cheaply than they could by borrowing directly on bank credit lines. The system allows for the very efficient movement and use of massive sums of capital, but if it ever shut down the consequences for the economy would be extremely dire
Last week, it began to shut down.
The nearly simultaneous failures or near-failures of Lehman Brothers, Merrill Lynch, and AIG last Sunday and Monday were a huge blow to the already damaged high-quality debt markets. The pre-existing uncertainty about the stability of companies who had bought lots of potentially bad mortgage loans further increased, but more importantly the stability of companies who had lent money to or insured the value of those companies, through now increasingly famous credit default swaps, came into question. (Indeed, the news that AIG was in trouble might have been the turning point: AIG did invest in risky mortgages, but it appears that what really pushed the company beyond the point of no return was its liability as an issuer of credit default guarantees.) Fear spread quickly among big lenders. The LIBOR, a key interest rate that big banks charge on loans they make to each other, literally doubled overnight. For the first time in decades, a major money-market fund reported that the value of its commercial paper holdings had sunk below purchase value. Money-market funds stopped buying commercial paper. General trading of commercial paper and other debt instruments between even the biggest banks slowed as banks became afraid to make even short-term loans to each other. The credit markets were freezing up, and in just a few days the capital freeze would have spread to consumer and small business lending. Large companies, and then smaller companies, might have had to make widespread layoffs. Simply put, the economy was heading into cardiac arrest.
In the wake of the announcement of the federal government’s plan to buy up to $700 billion worth of distressed securities from financial institutions, the credit markets have drawn back from the edge a bit. But as the decline in the stock market this week has shown, the continuing inability of elected officials in Washington to come to agreement over the terms of the rescue plan is driving continued uncertainty and instability in the U.S. financial system. The message coming from Treasury, the Federal Reserve, and Wall Street is clear: the financial system needs the bailout to pass, and it needs the bailout to pass now.
But just because Secretary Paulson, Chairman Bernanke, and various titans in the private sector say a bailout is the only way forward doesn’t inevitably require the conclusion that it is. Indeed, in the last few days a somewhat surprising (at least to me) number of strong dissenters, both policymakers and commentators, have emerged. The arguments from the left --which mostly seem to boil down to the idea that bailing out irresponsible borrowers is fine, but bailing out financial companies is horrible-- don’t much interest me, but some of the ones on the right call for answering, especially from those (like me) who often bemoan government interference in the markets.
George Will has a fine column in today’s Washington Post making (explicitly and implicitly) what I consider to be the four of the most trenchant free-market arguments against the rescue plan. They are: (1) the bailouts the federal government has already tried (from Bear Stearns onward) in this situation haven’t averted the current crisis, (2) as a matter of constitutional law, the bailout plan proposed by Secretary Paulson gives the Executive too much discretion, (3) as a practical matter, the Treasury Department could not make all the many, many decisions of the bailout plan with anything like the efficiency we expect from our decentralized, free-market credit system, and (4) a more general objection that the plan would, at least temporarily, greatly expand government control over the “commanding heights” in our economy (our credit markets), a quasi-socialist move.
All these objections have considerable merit.
Though the bailouts the federal government has committed to so far may well (as Secretary Paulson claimed yesterday) have staved off a real financial collapse up to this point, they haven’t prevented the current crisis. On the legally of the proposed plan, under Supreme Court precedent as it currently stands the Treasury’s bailout plan is probably on pretty solid ground; the non-delegation doctrine (which prohibits Congress from just giving the Executive completely unfettered discretion over a subject) still has some bite, but not much. However, were it tested by the “true meaning” of the Constitution, with a narrower reading of Congress’s delegation abilities, I agree that the Treasury's plan might well not pass muster. Furthermore, though Secretary Paulson and those experts charged with deciding which securities get purchased and at what price are undoubtedly financial wizards, centralized governmental decision-making is by nature considerably less efficient than markets in allocating economic resources. Finally, a $700 billion plan to enlarge (even temporarily) the federal government’s role in markets that hold a vital place in the American capitalist scheme should always raise very important economic and philosophical questions about the role of government. All in all, the Treasury's bailout proposal is a bad option indeed.
But with all that said, Congress should still pass it. The only realistic alternative to doing so is doing nothing (or passing a plan that is so limited in scope that it amounts to nothing). If it becomes clear that there won’t be a bailout, the credit markets could move from a state of fragility to a state of collapse. If that happens, we’re not just talking about a recession, at least not of the kind America has experienced in the modern economic age. We’re talking about a quasi-depression. And, aside from the short-term human trauma that would cause, measures that federal and state governments would impose to deal with the downturn would likely dwarf the intrusiveness and the expense of the current bailout proposal.
Situations where one must choose between two bad choices are never desirable, but actually making the choice is often simple: you choose the least-worst alternative and deal with the consequences as best you can. Congress must now do the same.
Update: Changed the title to make it more reflective of the content of the post.
Passage of key elements of the Treasury Department’s emergency bailout plan for the credit markets may be delayed until next week because of tangential disputes between Congressman Democrats and the Administration. One current, remarkably stupid sticking point: Dems are demanding that the authorizing legislation reduce the compensation of executives at financial companies who sell assets to the government under the plan.
Even in times of crisis, the urge to pursue populist nonsense that will do absolutely nothing for the common good remains strong.
(By the way, I’ll have a fairly lengthy discussion of the merits and shortcomings of the bailout up this week.)
On Friday, federal regulators closed Ameribank, a very small Northfork, West Virginia-based bank. Two other banks in the region have assumed all of Ameribank’s assets, meaning it appears that all bank deposits (including those over $100,000, which usually aren’t covered by the FDIC) will be honored.
I’m glad depositors will get all their money, but hopefully they’ve learned a life lesson as well: don’t keep your money in a bank with seven branches (I checked the Ameribank web site).
A federal jury awarded a state prisoner in Wisconsin $295,000 in punitive damages because prison officials made him sleep on a moldy mattress for about two months. The prisoner suffered no physical harm.
A state judge in Florida ruled that a local ban on “saggy pants” is unconstitutional. No word, apparently, on whether the judge considers the law violative of the Florida state constitution or the federal Constitution, or what specific provision of either the judge thinks the law contradicts. Unimportant details, perhaps.
(Both via Drudge.)
The next time you hear a liberal Dem assert that Republican-pushed financial deregulation has led to the current financial crisis, remind him or her that (1) one of the key causes of the current situation was the practice financial institutions making mortgage loans to people who couldn’t really afford them; (2) dating from the early Clinton years and extending until very, very recently, that trend was cheered on, not criticized, by governmental policy makers of all political stripes who greatly enjoyed boasting of ever-increasing home ownership rates; (3) perhaps the most important participants in the trend were government-sponsored organizations Fannie Mae and Freddie Mac, who made lots and lots of politically popular loan guarantees to back higher-risk mortgages made to lower-income folks; (4) as recently as earlier this year, Congressional Dems wanted to give Fannie and Freddie the authority to back even greater numbers of higher-risk loans; and, finally, (5) as we now know, in his short time in the Senate Barack Obama has taken more fundraising cash from the two companies than any other senator except one has taken during the past 19 years.
So the Obama campaign released an ad today attacking McCain for being stuck in the past. One of the points made in the ad is that McCain doesn't use a computer, relying on his wife and his staff to take care of his electronic obligations. Obama aides reinforced the message, with spokesman Dan Pfeiffer saying "It's extraordinary that someone who wants to be our president and our commander in chief doesn't know how to send an e-mail."
Now (like many, I'm sure) when I first heard about this new line of criticism I wondered if the reason McCain doesn't use computers on a regular basis has anything to do with his war injuries. But no, I thought, surely Obama's people would have looked into that possibility and dismissed it.
Apparently not. As Jonah Goldberg posts over at The Corner, multiple news sources confirm that McCain is quite limited in his ability to use a keyboard because of the damage inflicted on his arms and shoulders during his torture as a POW.
To any Obama supporters reading this: I know there are a lot of jokes about the matter, but you folks really aren't trying to lose this election, right?
Not content to let radical Muslims and leftist adherents of political correctness have all the speech-suppressing fun, the center-right Catholic-allied government of Silvio Berlusconi may prosecute a comedian for a joke about Pope Benedict XVI. Under a law enacted during Italy's fascist period, she could receive up to 5 years in prison.
It's almost certain that a simple public statement from the Vatican asking Italian authorities to drop the matter would end the case. The Catholic church has said a lot in the past decade about how it now views free expression as a fundamental human right. We'll see if it walks the walk.
Some various additional thoughts about the events this week, in semi-chronological order:
- Limiting George W. Bush to a short, taped address was just wrong. I know he’s quite unpopular, he’s made lots of policy mistakes, he's been less than a solid fiscal conservative, etc. But still, he's a sitting two-term Republican President. He deserved a passing-the-torch-to-McCain speech, and such an address almost certainly wouldn't have resulted in any significant political harm to McCain.
As it was, the way the matter was handled was distinctly un-Republican.
- After viewing Fred Thompson's speech on Tuesday I thought I had seen what was likely to be one of the best speeches of the convention. Now it's evident I was wrong in that prediction. But it was a good speech, and I'm glad that we got to see an appearance from Fired Up Fred Thompson, rather than I Can Barely Be Bothered Fred Thompson.
- If McCain wins, he must find a spot in his administration for Michael Steele. The GOP can't afford to have a talent like him out of the public eye.
"Drill. baby, drill!"
- The good news for Mitt Romney: on Tuesday night he gave a pretty good address, with some crowd-rousing one-liners. The bad news for Mitt Romney: he spoke right between Steele and Mike Huckabee, and in the hour before Rudy Giuliani and Sarah Palin. That's what's called "overshadowed."
- For all the great lines by Palin and Giuliani and the rest, in my view Huckabee had the best one of the convention:
"I'm not a Republican because I grew up rich, I'm a Republican because I didn't want to stay poor waiting for the government to rescue me."
Huckabee has lots of flaws, but no major GOP politician makes points like that better.
- Speaking of Huckabee, this convention demonstrated exactly how important a good closing is to a political speech. Huckabee's lengthy and puzzling closing anecdote about earning desks (if you didn't see it, it's not worth your time to track it down or my time to explain it) turned a borderline excellent speech into a merely good one. By contrast, McCain's close was the difference between a truly middling speech and one that was good enough for the occasion.
- Covering Rudy's speech, NRO contributor Jim Geraghty posted the following comment from one of his readers:
"Nobody gives a good [blank] you speech like Rudy Giuliani."
- Considering the hectic scheduling circumstances, it's hard to lay too much blame on the organizers, but the pre-McCain Thursday night speaker lineup was just horrible. And Hurricane Gustav didn't have anything to do with those lousy bio videos.
Adequate. Not excellent, or particularly grabbing, but he did enough. He had a couple of very nice stretches (how his values changed during his time as a POW, and his rapid-fire optimistic closing), handled the intruding wackjobs and obvious teleprompter problems with aplomb, and didn't have any massive screw ups.
By the way, whoever thought of putting a full-length big screen directly behind the speakers should experience an involuntary swim in this Mississippi tonight.
In my analysis of her selection it occurs to me I didn’t actually answer Tom’s query about my thoughts the impact of Bristol Palin’s out-of-wedlock pregnancy. Indeed, on Monday and Tuesday I had thought that the news would diminish the enthusiasm of some social conservatives for the pick, but it appears that over the past couple of days the attacks from media on the issue have only caused conservatives of all stripes to rally around Palin further.
As for the “merits” of the matter, even if her daughter’s pregnancy says anything about her fitness as a parent (which, in my view, is hardly clear) it says nothing about her fitness to be vice-president.
Over the past three weeks or so I’ve been preoccupied with several circumstances (including a benign but decidedly unpleasant illness), and I appreciate your indulgence, dear reader, of my lack of posts over that time. As I get back in the game, I may as well start by briefly offering some thoughts on John McCain’s selection of Alaska Governor Sarah Palin as his running mate. (Everybody else is, at any rate.)
As for the political wisdom of the choice, I basically agree with the early conventional wisdom: the choice is quite a risk. The benefits and potential benefits of choosing Palin are fairly evident. The pick of a strongly pro-life, pro-gun running mate has energized social conservatives in the GOP base in a way that McCain alone had not done and perhaps could not have done before November. Her family’s blue collar roots and lifestyle are potentially appealing to lots of voters, and the prospect that she could become the female first vice president lends some more excitement to the ticket and can only help in the effort to attract Hillary Democrats. In her brief time as Alaska Governor she has developed something of a reputation as a hardnosed anti-graft reformer. Her relative youth and, yes, attractiveness don’t hurt the ticket either.
But the downsides and potential downsides of the pick are evident as well. There’s just no getting around the fact that it’s a negative that her most relevant experience resume point is that she has been governor of one of the least populous states in the Union for less than two years. We may find out that her credentials as a reformer are somewhat less impressive than first thought; we’ve already been reminded that she was for the Bridge to Nowhere before she was against it and that as recently as July she publicly expressed support for long-time embarrassment-to-the-American-system-of-government (and now indicted) Sen. Ted Stevens. Palin also faces challenges not of her own making and that have nothing to do with her merit, but are still very real. After her selection was announced, Palin immediately begin facing the special hatred that many on the left and their allies in the media have for figures who, by their existence, challenge the charge that the GOP is only a party of, by, and for white men. Many of these hate-filled attacks will backfire, but some may stick in popular estimation. (Remember how the left has relentlessly slandered Clarence Thomas from the moment George W.H. Bush nominated him to the Supreme Court? What Palin will face over the next two months and, if McCain wins, the subsequent four years will easily top that.)
The import of all this? Her political upside is big, but Palin has very little margin for error as she introduces herself to the country. Her first big speech in Dayton was very good, and I expect an even better effort at the convention in a few minutes --she isn’t nicknamed “Sarah Barracuda” for nothing—but a few minor flubs could allow the Dems to be successful in painting her as a new Dan Quayle.
Is the risk worth it? It’s not one that a more cautious candidate would have taken, and some good safer choices (like Pawlenty and Romney) were available. But John McCain is anything but risk averse, and we’ll see how things play out?
Before closing, I suppose I should say something about the non-political angles of the pick. It will be very brief, because there’s really not much to say. Let’s apply the William Henry Harrison test. If, whatever deity that may be forbid, John McCain were to win in November and then catch a fatal illness on inauguration day, how comfortable would you be at the prospect of Sarah Palin becoming President right off the bat?
To channel Justice Scalia, to ask is to answer.
So let’s hope that Palin performs exceptionally well over the next two months, as she is capable is doing, and contributes to a McCain win in a significant way. And let’s hope John McCain stays healthy for years to come.
Update: Fixed a few grammar errors.