News junkies and policy wonks – if you are reading these words you just might be one of them – know the dead time. Between the big events you know are coming, given the big events that just happened, lies that middle ground where you wait, with time on your hands. You use that time to step back and think. What is going on here?
Tuesday, September 30, was one of those days – the day after the House surprised everyone and voted down the seven billion dollar emergency rescue/bailout plan that might keep our financial system, and the world’s, from collapsing over the next days or weeks, and the day, in response, the markets crashed, the biggest one day point drop in history.
That was an historic and frightening day – then the House and Senate adjourned for Rosh Hashanah, that solemn and introspective holy holiday marking the Jewish New Year. That seemed to fall at the right time – introspection and solemnity seemed appropriate. Those who have even a vague understanding of economics were in despair at what would surely come if nothing were done, and more than a trillion dollars in assets had just disappeared.
A day off was a good idea – time to try to put things in perspective, if possible. Perhaps some rescue plan could be devised, and when Congress returned, there would be some reconsideration. But not that day – the talking heads on television were doing perspective pieces. There was no news, and the vice presidential debate two days off – so whatever was said of Sarah Palin was all backgrounders and guesses as to whether she could pull off a shocker and string a coherent sentence together. No one expected much more – the big policy issues are all new to her, nothing she ever much thought about before, or even cared about, given her education and career to date. We would all have to wait to see if she suddenly thought about the wars and the economy and healthcare and all the rest, and seemed to care much at all about such things.
But on the down day of no big news, the markets rallied:
Wall Street snapped back Tuesday after its biggest sell-off in years amid growing expectations that lawmakers will salvage a $700 billion rescue plan for the financial sector. But the seized-up credit markets where businesses turn to raise money showed no sign of relief.
Fine – half the loss recovered, but the real problem is still out there. Credit markets remained frozen – businesses were slowing down, payrolls were not being met, inventory not refreshed and all the rest. It was the eye of the storm.
Late in the day, the rescue/bailout plan rose from the dead:
In a bold bid to revive President Bush’s multibillion-dollar financial rescue plan, Senate leaders scheduled a vote for Wednesday night on a version of the bill that adds substantial tax cuts meant to appeal to Republicans when it reaches the House.
So the Senate would vote first, where this thing would certainly pass, and would add something to reduce the panic that had people worried they’d lose everything – raising the FDIC deposit insurance guarantee from a hundred grand to a quarter million dollars, so people, particularly small businessmen, would know their money was safe. Obama proposed that in a five in the morning press release and McCain didn’t even attack him – within a few hours McCain was saying that was a good idea, as did the president. More than anything else that should have caused a bit of a panic – as things were so serious no one was arguing or jockeying for credit for the idea, or trying to figure out a way to say it really was a stupid idea. As for the tax cuts – for big business mostly – those were thrown in for the House Republicans, the folks who think tax cuts for businesses and the rich fixes everything. It didn’t matter – it was a sop. And it seemed to do the trick – the free-market zealots on that side said they might be willing to support the rescue if some additional tax money were used to make it easier for the captains of industry to raise profits.
There was no disagreement – Both Obama and McCain Make Push for Bailout – and the three senators – Obama, McCain and Biden – said they’d be there to vote for the rescue legislation. Sarah Palin is not in that league – until recently she had been a utility infielder with the Single-A farm team in Wasilla. No one knows if she can hit a real curveball, even if she’s sort of in the majors now. We’ll see. And she’ll find something else to do that Wednesday night.
Not that the thing seemed to be heading toward bipartisan sweetness and light, as noted in Politico:
John McCain’s fade in recent polls, combined with a barrage of negative news coverage during the financial crisis, has leading Republican activists around the country worrying about his prospects and urging his campaign to become much more aggressive against Barack Obama in the remaining month before Election Day.
A flurry of new polls shows Barack Obama gaining in several battleground states – most notably Florida, Pennsylvania and swing states throughout the West. Officials worry early voting, which is under way in important states such as Ohio, is likely to favor Obama in this toxic political climate.
Several state GOP chairmen in interviews urged the McCain campaign to be more aggressive in hitting Obama’s vulnerabilities, such as his past relationship with the Rev. Jeremiah Wright and other problematic associations from Chicago.
After the rescue plan is settled, it’s back to endless ads about Jeremiah Wright and Tony Rezko and William Ayers. Most of us thought all that had been settled long ago with Obama’s amazing speech on race in America and how he cut himself loose from Jeremiah Wright, and how with Tony Rezko and William Ayers there seemed to be nothing there. It seems we’ll get Golden Oldies. That’s fine – same attack, same response, same yawns all around.
It seems kind of a shame, given the big issues:
Cities, states and other local governments have been effectively shut out of the bond markets for the last two weeks, raising the cost of day-to-day operations, threatening longer-term projects and dampening a broad source of jobs and stability at a time when other parts of the economy are weakening.
The sudden loss of credit, one of the ripple effects of the current financial turmoil, is affecting local governments in all parts of the country, rich and poor alike. Washington has shelved a planned bond offering to pay for terminal expansion and parking garages already under construction at Dulles and Reagan National Airports. Billings, Mont., is struggling to come up with $70 million more for a new emergency room. And Maine has been unable to raise $50 million for highway repairs.
“We really are in terra incognita here,” said Robert O. Lenna, executive director of the Maine Municipal Bond Bank, which helps that state’s towns and school districts raise money. He said he had worked in public finance for 34 years and had never before seen credit evaporate so completely.
Maine had already begun some of its road work when the bond markets stopped functioning, so now it is scrambling for bank loans to keep the dump trucks rolling. If money does not start flowing soon, Mr. Lenna said, Maine will have to cancel some of its road and bridge projects.
And just look at Massachusetts:
The most immediate need is $1.3 billion in quarterly payments that are scheduled to go out to cities and towns next week. Municipalities use the money to fund everything from teachers to trash collections.
Cahill said it appears likely that cities and towns will get their local aid payments – preventing layoffs and cutbacks in municipal budgets – but he said he has had to jump through a complex set of financial hoops to make it work. Cahill and other state officials characterize the borrowing maneuvers as common ways to make payments before all of the tax revenue comes in. But the state usually is not this strapped this early and facing interest payments this high.
The state yesterday borrowed $51 million in a short-term loan from investors, at an interest rate of 6 percent for a practice that normally charges 2 percent interest. In order to make local aid payments, the state still needs to borrow up to $349 million in similar loans before next week. State officials fear a similarly high interest rate.
“This stuff is unheard of,” Cahill said. “It’s like going to the loan shark for money.”
If you want to talk about Jeremiah Wright and Tony Rezko and William Ayers, fine. Just don’t expect people to take you seriously.
Hilary Bok comments:
Heading into a recession is the worst time to cut back on projects like these, which provide people with good jobs, and can work to keep the economy going. The Federal Government can run a deficit, but most states cannot. So just at the time when people need these jobs the most, they end up having to cut back. It makes problems with the economy worse, when keeping these projects going would help to make it better.
But that may not be what we hear about. Politics is odd.
It fact, politics may have stopped working altogether, as Ezra Klein, considering the first failure of the rescue bill, argues here:
This is a failure of politics. Like with global warming, with health care, with the national debt, with immigration. It is further proof that we have a calcified political system incapable of responding to either long-term threats or short-term crises. The electoral and partisan incentives have made actual action too dangerous and rendered obstruction everyone’s easy second choice. And in politics, you just about never get your first choice. And so the Republicans killed this bill. Without their cover, the Democrats couldn’t save it, because politically, they couldn’t take ownership of it.
It’s easy enough to imagine a society running atop a stable economy even when it has an unhealthy politics. And it’s simple enough to see how an unstable economy can be calmed through concerted action by an effective political structure.
But an economy in chaos and a political system in paralysis? What happens then?
Good question. Our dysfunctional politics places some good options off the table, makes others much more difficult to implement than they would be otherwise, and prevents us from adopting those decent options that remain to us.
And see Digby:
You can see a real weakness in our founders’ vaunted system right now. A parliamentary system would allow the government to have a vote of no confidence immediately and put someone in charge who had some credibility. We are stuck with this lame-duck functional moron (hat tip to Bill Maher) for nearly four more months and the vacuum of leadership is a serious problem. Meanwhile, the conservatives have so degraded the country’s faith in its government institutions that nobody believes there is even an adequate bureaucracy to carry out basic tasks anymore. It’s a dangerous thing for the most powerful country in the world to be without specific knowable leadership at a time of crisis in the middle of a historically important election. But that’s where we are.
The most amusing thing about all of this (if there’s anything amusing at all) is that the Big Money Boys seem to have awakened and realized that the party they’ve been supporting all these years has been taken over by a bunch of dogmatic rubes who, when push comes to shove, refuse to support their masters. And after all they did for them…
How did that happen? What happened to the Republicans, the party of Eisenhower and such relatively sensible folks?
Timothy Noah has something to say about that in Slate, with GOP, RIP?
The central con of the political coalition assembled by Ronald Reagan and maintained by his successors was that government was a common enemy. Middle-class social conservatives loathed the government for legalizing abortion, forbidding prayer in schools, and coddling minorities through welfare and affirmative action. Upper-class libertarian conservatives loathed the government for soaking the rich through the income tax and weakening businesses through burdensome regulation. The only useful function of the federal government was to provide for the common defense.
This was a con for two reasons. First, the middle and upper classes were both dependent on the federal government for a variety of benefits, including Social Security, trade protection, scientific research, and assorted localized spending (termed “pork barrel” by those who don’t receive it and “economic development” by those who do). Second, the distribution of this government largesse greatly favored the rich. In the April 1992 Atlantic, Neil Howe and Philip Longman, citing unpublished data from the Congressional Budget Office, reported that U.S. households with incomes above $100,000 received, on average, slightly more in federal cash and in-kind benefits ($5,690) than households with incomes below $10,000 ($5,560). This was four years before the Clinton administration eliminated Aid to Families with Dependent Children, the principal income-support program for the poor. When tax breaks were added to the tally, households with incomes above $100,000 received considerably more ($9,280) than households with incomes below $10,000 ($5,690). Clinton subsequently expanded tax subsidies to the poor through the Earned Income Tax Credit, but not enough to undo this disparity. “[I]f the federal government wanted to flatten the nation’s income distribution,” Howe and Longman concluded, “it would do better to mail all its checks to random addresses.”
So we are where we are now:
The Reagan coalition survived because nobody wanted to believe this, and because both upper and middle classes were bought off with President George W. Bush’s tax cuts. (That the tax cuts favored the wealthy didn’t seem to matter.) But the proposed $700 bank bailout made it hard for Republicans to cling to their cherished illusion that government exists only to indulge spendthrift widows and orphans. Moreover, the $700 billion was needed to save the very beau idéal of conservatism, the free market. It was needed so badly that (after a few alterations to protect the taxpayers’ investment) liberal House Democrats like Barney Frank made common cause with conservative House Republicans like John Boehner to urge its passage. To a Republican party that had come to believe its own propaganda, this simply didn’t compute. So House Republicans voted against their standard bearer’s own bailout by a margin of two to one, a dose of free-market principles that sent the Dow into the crapper.
So Reagan-style Republicanism failed here, but Noah argues this was actually the second time it failed:
The first was the belief that the United States should extend military power wherever enemies lurk, regardless of what our allies do. Reagan didn’t actually practice this doctrine, except to overthrow a teensy regime in Grenada and to deploy (and, after a deadly terrorist bombing, withdraw) U.S. Marines in Lebanon; he preferred to level stern rhetoric against the Soviets (“Evil Empire”) while subsidizing proxy wars abroad, not always in accordance with the law.
That the Soviet Union started to disintegrate on Reagan’s watch is mistaken by many for proof that it’s possible to defeat a powerful enemy by calling it names and spending a lot of money on (but never actually using) military weapons. President Bush, alas, took Reagan at his saber-rattling word, waging a war against Saddam Hussein so unilateral that, except for a few Kurds, there was no indigenous fighting force to prop up the way we propped up the ARVN in South Vietnam. The result was and remains, even after violence in Iraq has been greatly reduced, a lingering feeling even among Republicans that the Iraq war was at best a distraction from the more necessary fight against Al-Qaida and the Taliban.
Maybe it’s time for the Republicans to pack it in. Of course they won’t.
On the other hand, in the Huffington Post there’s this – Report: Gingrich Stabbed Boehner In Back, Whipped GOP Opposition to Bailout. That would be Newt Gingrich, from the old days, pulling the strings in the background, and no one in the party listens to the president anymore, and now no one listens to McCain (his riding to the rescue turned into a farce), and John Boehner, the minority leader in the house, promised the votes for the rescue plan and the rank and file told him to stuff it and voted against the thing. He looked like a fool. So did McCain and Bush. No one is in charge.
As for McCain, see Josh Marshall:
McCain has revealed himself as a liar well outside the permissive standards applied to politicians. He’s shown himself to be reckless to the point of instability, repeatedly putting the country at risk (exploiting the Georgia crisis, picking Palin, storming the bailout negotiations) for transparently self-serving reasons. And in too many ways to count, he’s conducted his campaign in disgraceful and dishonorable ways.
But he’s what the Republicans have got, and Sarah Palin.
But there’s always hope. At Red State there is this proposal – sending Palin to resolve the bailout chaos with the House bloc on Capitol Hill that hates this bailout. She could bring them around:
Gov. Palin may be just the person to speak their language. Surely, she could fairly promise in return to campaign in their districts and defend their decision to skeptical voters. Then, hold a joint press conference hailing them as heroes for biting the bullet to switch their votes and save the economy and, while she’s at it, explain to the media that she has learned as a Governor that being a doer matters more than being a talker. “Nancy Pelosi, here are the votes you couldn’t deliver in your own caucus. Now, let’s get beyond finger-pointing and do the people’s business.”
Well, they need someone to lead. But this seems a little far-fetched for a minor-league utility player, one who doesn’t really even know the game, and is proud she doesn’t. On the other hand, what else do they have?
But it’s not just a Republican problem. Use the down day to take a step back. In the Guardian, read John Gray:
The fate of empires is very often sealed by the interaction of war and debt. That was true of the British Empire, whose finances deteriorated from the First World War onwards, and of the Soviet Union. Defeat in Afghanistan and the economic burden of trying to respond to Reagan’s technically flawed but politically extremely effective Star Wars program were vital factors in triggering the Soviet collapse. Despite its insistent exceptionalism, America is no different.
Well it was the holiday – introspection and solemnity seemed appropriate.