Somebody has to do something, and it’s just incredibly pathetic that it has to be us. ~ Jerry Garcia
Jerry Garcia and his buddies called the band the Grateful Dead in a flourish of stoner irony – it was a gentle joke, and no big deal. For all their considerable musicianship they preferred the personae of a bunch casual guys in a bit of a haze, all loose and indifferent to what anyone thought, and pretty much just goofing around. The audience loved it. Other musicians knew better. What they came up with was not something that just happened in a drug induced haze – the drugs, and there certainly were those, always mess up your chops. But you weren’t supposed to know that – you just let the amazing music roll over you.
But the self-deprecating quote is instructive. No one should take themselves too seriously, but even so, those who do a perpetual goof on everything are sometime the only ones who get things done, as pathetic as that is. After all, you just can’t count on those who do take themselves seriously, who say they really know things, believe particular things deeply, and generally know best. Along with being a royal pain in the ass, such folks cause nothing but trouble.
One thinks of the events of Monday, September 29, 2008, and the House Republicans. This was the day the House, to everyone’s surprise, voted down the seven hundred billion dollar bailout/rescue package – the emergency measure designed, and redesigned a few times, to keep the world’s financial markets from crashing. The Treasury Secretary and Chairman of the Federal Reserve had figured out we had weeks, or maybe days, before the credit markets seized up and no one would be lending anyone funds for any purpose, and we had to act now. The President, who trusts them, as he seems a little weak on the details of anything, said fine – and they ran to congress for authority to proceed. No one much liked the idea of throwing all that money at the problem – money we didn’t have and would have to create with the sale of more treasury bonds to the Chinese and all the rest – but they got it. The voters – Joe Six-Pack and the rest – wouldn’t like it, but this was end-of-the-world stuff. No one wanted something like the Great Depression again – and what was happening was heading in that general direction.
So the leaders of both parties in the House and Senate worked on turning the original proposal into enabling legislation that would satisfy all parties – or at least some political cover from angry voters. That wasn’t easy. John McCain suspended his campaign to rush to Washington to show he was a leader – he’d get everyone in line in a bipartisan way. Yeah – he only talked to Republicans and set things back, as most everything had been worked out before he arrived and he said little and did less – but sometime after midnight Sunday morning, everyone agreed to the principles involved and the legislation was written that day. The house was to vote Monday, the Senate on Wednesday, and Armageddon would have to wait for another day.
Monday rolled around. The House speaker, Nancy Pelosi, decided she had her party in line – two thirds of them would vote for it. The minority leader said he had his party pretty much in line. There were the public statements – we’re all behind this now, however reluctantly, as is the president and both candidates for president.
So the vote came to the floor, and it seems the minority leader had miscalculated. Two thirds of the House Republicans voted against the thing and it died. Both party leaders looked stupid, and John McCain – who mocked Obama for not getting more directly involved and said he’d make sure it passed – looked extra stupid.
We all know what happened – Lawmakers Defy Bush and Party Leaders, Rejecting Bailout and For Stocks, Worst Single-Day Drop in Two Decades and Nightmare on Wall Street: Dow’s Worst Day Ever and Lawmakers Scramble to Figure Out Next Move in Financial Crisis.
And we know what happened on Wall Street:
DJIA at 10365.45 – down 777.68 (-6.98%)
NASDAQ at 1983.73 – down 199.61 (-9.14%)
NYSE at 7204.01 – down 686.36 (-8.70%)
S&P 500 at 1106.42 – down 106.59 (-8.79%)
The Dow ended lower than it was the day Bush took office in 2001, which no doubt made him grumpy. He’ll have an interesting legacy.
And as evening settled in – Asian Markets Fall On U.S. Bailout Failure – although the next day’s futures were up a tiny bit, a classic dead-cat bounce. That’s when the fundamentals still stink, but there are some bargains around – dropped from a great height even a dead cat will bounce.
This was a disaster.
And there was no quick fix. Congress Takes Vacation As Bailout Stalls: Oy Vey – “Despite the best efforts of Bush officials, there will be no quick action after today’s defeat of the bailout plan because Congress is out of session through Wednesday for Rosh Hashanah.”
On CNN, the resident angry populist, Lou Dobbs, channeling Joe Six-Pack, said this was “a great victory for the American people” (from having seen him say that, confirming link later) – no money would go to the crooks on Wall Street and all that. But the economist Alan Krueger delivers the bad news:
Obviously, jobs in the banking, finance, construction and residential real estate sectors will take a direct hit because the problem started with a bubble in home prices. But the damage is likely to spread to other sectors. Industries that rely on customers who use credit to buy their goods are especially vulnerable. Thus jobs in durable goods manufacturing – such as autos, heavy household appliances and business equipment – are likely to be hit hard.
Also see They Just Don’t Get It – but it all comes down to the nature of a credit crunch. No one knows who is solvent and can pay anyone back, so banks sit on their money and dole it out only when they’re sure at least some of it will be repaid, or the general economy perks up and you don’t have to worry so much. It doesn’t take much to see where that leads. You’re a small business with a revolving line of credit to smooth out cash flow – you take some out to meet payroll and pay some back in from accounts receivable when you’re finally paid for your goods or services – but the credit is cut back and you can’t meet payroll. People don’t get paid. Maybe you’re a manufacturer in a parallel situation – you dip in the credit line for inventory, parts to make the gizmos, and pay back in when you sell them. Now you can’t maintain your inventory, and can’t build as many gizmos, so you start the layoffs. You have no choice. Or you’re a farmer and use credit to buy seed, fertilizer and fuel for the equipment, and when the crop comes in and you sell it, you pay back the loan and keep your profit. No more of that. The list is endless.
And of course banks are sitting on a ton of bad debt already – mortgages on houses that are now worth far less than the amount of the loan, and home equity loans based on those houses, and who knows what else. And there are the derivatives and commercial paper and all that other leveraged debt in odd credit instruments and credit default swaps and all the rest – no one knows if any of that is worth a dime, or a dollar, or nothing. That stuff is held by banks and other financial institutions and was sold to governments large and small around the world.
The seven hundred billion was to buy up that crap and hold it off the market, so we could start again with everyone knowing just what things were worth. Think about it – no bank is going to do anything when they don’t know whom to trust, they’re sitting on a mountain of debt they cannot even assess, and face going bust. If everyone wants their money now – a bank run – they don’t even know how much they have on hand.
So something had to be done. And it wasn’t done.
So back to Gerry Garcia and those people who do take themselves seriously, who say that they really know things, believe particular things deeply, and generally know best, the ones who are a royal pain in the ass and cause nothing but trouble. That would be the group of House Republicans who told their party leaders, and their president, and their presidential candidate John McCain, to stuff it – no more money for those fats cats on Wall Street. And it seems to be more than responding to their angry constituents – the government has no business even glancing at the free market. The market is self-correcting and produces the optimum for all as if you don’t give people what they want you don’t make money, and so on and so forth. You don’t bail people out – the market takes care of that.
Garcia would tell them, time to chill. Yep, you can shout about socialism and communism and all the rest, but when something is broken you fix it.
Of course when the markets, seeing the rescue fail, crashed, these same Republicans had to find someone to blame. They knew they shouldn’t have voted as they did – they’d be blamed for a market crash and a possible economic meltdown.
The decided the Devil made them do it – actually saying that they had the votes to pass it, but Nancy Pelosi gave a speech before the vote that hurt their feelings, so of course some of the yes votes turned to no votes, and it was all her fault.
No, really. Here’s the Pelosi floor speech (video here) that Republicans claim so enraged them that they decided to change their votes right then and there. It’s boilerplate – nothing that hadn’t been said before. The Republican House leadership laying all the blame at Pelosi’s feet is here – and there’s Barney Frank’s response:
We don’t believe they had the votes and I think they are covering up the embarrassment of not having the votes. But think about this: somebody hurt my feelings so I will punish the country. I mean that’s hardly plausible. And there were twelve Republicans who were ready to stand up for the economic interest of America – but not if anybody insulted them.
I’ll make an offer: Give me those twelve people’s names and I will go talk uncharacteristically nicely to them and tell them what wonderful people they are, and maybe they’ll now think about the country.
Barney can be nicely blunt. But a better analysis is in Slate, from Daniel Gross, Washington to New York: Drop Dead:
Well, maybe we don’t need much of a private-sector financial system after all. That’s the conclusion that most House Republicans, and a minority of House Democrats, seem to have reached in voting down the $700 billion bailout bill on Monday. Maybe it’s best that, in a few weeks, there will be essentially two large banks left in the country, JPMorgan Chase and Citigroup. After all it has done, perhaps that’s what the financial sector deserves.
Gross wonders what the problem really is:
Was the bailout bill killed by malice or by incompetence? It’s hard to argue against incompetence since it has been so rampant, especially on the Republican side of things in Washington. The congressional leadership and the White House clearly lacked the heft – or the energy – to whip recalcitrant members into line. “I don’t understand why President Bush didn’t go to members of his party and say vote on this,” Maria Bartiromo wondered on CNBC Monday afternoon. (Maria, if you have to ask, you don’t want to know.) Sen. John McCain, who interrupted his campaign to deal with the crisis, claimed – via his surrogates – that he wielded great influence in improving the deal and making it palatable. Then he left town as it collapsed.
But there is the political reality of the situation:
Obviously, Republicans were motivated in no small part by political calculations – short- and long-term. But it’s really hard to figure out what those calculations might be. Yes, incumbents of both parties – especially those incumbents facing tough re-election campaigns – don’t want to be on the hook for this vote. But consider the big picture: Despite all the hemming and hawing, investors and analysts seem to think there will eventually be a deal – because there has to be. So, let’s say that the House Republicans manage to draw out the process for a few more weeks. Maybe the final deal will be less costly to taxpayers – say, $300 billion instead of $700 billion. And maybe they will succeed in stripping some of the measures that corporate America and Wall Street find abhorrent (like limits on executive pay). Even in that best-case scenario, is there any reason to think that GOP politicians will be rewarded for their intransigence?
The answer is no:
Each time a deal is close to done and then gets scuppered, the market (and its many participants) freaks out. Huge quantities of wealth are destroyed. The markets fell about 8 percent after today’s stunt, likely wiping out close to $1 trillion in wealth. In so doing, they’re turning off whatever base the party had left on Wall Street and likely closing off a huge source of campaign cash. Asked for his evaluation of what took place today, Lawrence Fink, the CEO of asset management giant Blackrock, said, “Major disappointment came from the Republican side.” A Republican congressman who shows up for a fundraiser in Manhattan this week is likely to get tarred and feathered. In some congressional races, I suppose financial dislocation and bank failures could plausibly be good news for Republican challengers- but only if the challengers can pin them on the incumbent Democrats.
And of course this hurts McCain:
In general, I’ve found a lot of the analogies between the present situation and the Great Depression to be way off. But there’s one area in which the analogy might hold true. Just as happened in 1932, it’s possible that the Republicans’ incompetence and bullheadedness in managing a financial crisis could lead to Democrats controlling both the White House and Congress.
Well, McCain could run with a new campaign – America, get it right this time, and vote for the real Herbert Hoover!
Sen. John McCain (R-Ariz.) and his top aides took credit for building a winning bailout coalition – hours before the vote failed and stocks tanked.
The rush to claim he had engineered a victory now looks like a strategic blunder that will prolong the McCain’s campaign’s difficulty in finding a winning message on the economy.
Shortly before the vote, McCain had bragged about his involvement and mocked Sen. Barack Obama for staying on the sidelines.
“I’ve never been afraid of stepping in to solve problems for the American people, and I’m not going to stop now,” McCain told a rally in Columbus, Ohio. “Senator Obama took a very different approach to the crisis our country faced. At first he didn’t want to get involved. Then he was monitoring the situation.”
McCain, grinning, flashed a sarcastic thumbs-up.
Then see the Washington Post:
After bragging today about his role in shaping the economic bailout package, Sen. John McCain has made no statement to the press since the defeat of the bill, in part at the hands of House Republicans.
McCain boarded his Straight Talk Air charter plane a few minutes ago, but the plane has not taken off yet. McCain is in the front of the plane, separated from reporters by a brown curtain
Aides to McCain have not characterized his reaction to the bill’s defeat. On Sunday, he said he would “swallow hard” but vote for the plan, which he said was better than originally proposed.
As Gerry Garcia said – pathetic – and Steve Benen fills in more:
The McCain campaign’s senior policy adviser, Doug Holtz-Eakin, issued a statement blaming Democrats and Barack Obama for the Republican failure, but it was so laughably pathetic, no one took it seriously. Holtz-Eakin, demonstrating a degree of hackery that should effectively ruin his reputation forever, insisted, “This bill failed because Barack Obama and the Democrats put politics ahead of country.”
Um, Doug? Most Democrats backed the bill that McCain supported, while House Republicans – you know, the ones McCain brought to the table as part of his triumph – rejected it, on a nearly 2-to-1 margin. Who put politics ahead of country?
A lot of people lost quite a bit today, but in a purely political context, few look as ridiculous right now as John McCain. MSNBC’s Chris Matthews offered some on-air analysis this afternoon, and highlighted the fact that McCain positioned himself as the head of the Republican Party, but couldn’t get his party to follow him. “He’s like a cavalry commander who said ‘Charge!’ and the Republicans went into retreat,” Matthews said.
Now, it’s worth noting that there’s a possible flip-side to all of this. The deal looked pretty solid last week, and then McCain showed up and scuttled the whole thing. This morning, McCain was already dancing in the end zone, so confident in what would happen. But if you’re one of the many Americans who hated this bill, might not this help McCain? If he’s responsible for the debacle, and you hoped for a debacle, maybe McCain’s abject failure looks pretty good?
I don’t think so. McCain, his campaign, and his surrogates have invested too much over the last several days in trying to give McCain credit for the bill they just knew would pass. It’s simply too late for McCain to turn around now and say, “Guess what? I hated that bill all along!”
McCain “suspended” his campaign to get this bill to the floor – and then it failed because his friends didn’t like it. It’s a fiasco that’s going to be hard to live down.
And if the worst happens, as it seems to be happening – the worldwide crash – McCain will look worse than foolish. What can he do now – save Sarah Palin’s bacon and say she cannot debate anyone this week as he’s sending her to Washington to fix everything and save the world from economic catastrophe? Not likely. And anyway, the House rebels are adamant – no bailout of anyone, they’re dead to that idea – the grateful dead, if you will. So we all are screwed.
Kevin Drum sees this as a sort of 9/11 moment:
The Republican Party is now officially hostage to a band of primitive conservative ideologues whose knowledge of economics was already outdated when Christians were being fed to lions. They are simply beyond belief.
I’m not much happier with the Jello-like support the bailout bill got from many of our leading liberals. Unfortunately, I include Brad DeLong in this group, but he’s certainly right when he says, “This Republican Party needs to be burned, razed to the ground, and the furrows sown with salt…”
John McCain deserves to be tarred and feathered. His behavior over the past week has been almost unbearably craven.
Barack Obama’s behavior has been a little better. But only a little. He hasn’t exactly displayed a backbone of steel on this issue.
An awful lot of people really, really still don’t get it. I swear, if I hear one more blogger or pundit suggesting that maybe it’s actually a good thing the bailout bill failed because now we have a chance to pass an even better bill, I’m going to scream.
After the failure of the bill, the GOP leadership invented a fairy tale about Nancy Pelosi being at fault for the vote debacle because she gave a partisan speech on the floor of the House. The press is almost unanimously reporting this seriously. If Republicans had blamed it on Santa Claus, I guess they would have reported that seriously too.
Do you know the old saying about credit? “It’s like oxygen. You don’t know how much you need it until it’s gone.” We’re about to go into financial hypoxia, and it’s not the millionaires who are going to suffer most from this.
There are many of you who probably think I’m overreacting. I hope you’re right.
Some of us agree, actually. But we take hope in contrasting styles of crisis management:
Sen. Barack Obama expressed confidence Monday that lawmakers would come through with a financial rescue package, while John McCain’s campaign accused Obama and Democrats of putting “politics ahead of country.”
Andrew Sullivan – “Why is this race not over?”
See Garcia above – “Somebody has to do something, and it’s just incredibly pathetic that it has to be us.”