My feelings about this bail out proposal have gone from reluctant support, to uneasy non-committalness and now, I got to say at this point, I'm flat out against it.
First of all, a lot of these financial institutions that were big worries: Lehman Brothers, AIG, Wachovia, and Washington Mutual, have been taken care of one way or another, and the country's survived. What we're likely to see is issues with far smaller institutions that can be absorbed by larger ones.
I'm not sure this infusion of funds will even do any good. If there's a problem coming will this infusion of cash actually do good or will it merely drive up inflation and help investors who made bad decisions cut their losses while taxpayers are left holding the bag?
I'm left with a similar to the questions(aside from the ethical issues) I have about Embryonic Stem Cell Research. If these Mortgages are such great deals, why can't a private sector buyer be held? Too much risk, better to shove it on taxpayers, who are going to take a huge inflationary hit.
Passing this won't head off an expansion of government from a collapse. The potential damage to the very nature of our economy in a situation in which no big institution is about to go bust, but we've sure as heck got a lot of hype going on makes me say, "To heck with it."
If you want to blame something for this bill failing. Try Speaker Nancy Pelosi (D-Ca.) She got 40% of her Caucus voting against her on this issue. Secondly, at a time when everything's politically charged, her floor address, trying to turn this into a partisan issue was a horrible error. Bi-partisanship and a speech from the Speaker of the House trying to score Partisan political points don't go together.
Now, there are rumors that Pelosi could bring the bill back further to the left in order to pick up Black and Hispanic Caucus members. Writes Lawrence Kudlow:
A number of Republican House members and staff, along with others who are plugged in, are telling me that Nancy Pelosi and the Democrats will come back with a new bill that includes all the left-wing stuff that was scrubbed from the bill that was defeated today in the House.
As this scenario goes, the House Democrats need 218 votes, and they have to pick up a number of black and Hispanic House members who jumped ship because the Wall Street provisions, in their view, were too benign. So things like the bankruptcy judges setting mortgage terms and rates, the ACORN slush-fund spending, the union proxy for corporate boards, stricter limits on executive compensation, and much larger equity ownership of selling banks through warrants will all find itself back in the new bill. Of course, this scenario will lose more Republican votes. But insiders tell me President Bush will take Secretary Paulson’s advice and sign that kind of legislation.
The problem with this idea. First, not every one of the 95 Democrats who voted against this was a big time liberal. John Yarmouth (D-Ky), Scott Mattheson (D-UT) were some of the guys saying no to this. If Pelosi moves this bill to the left, she'll lose a lot of Republican Support, and whether she'll gain net Democratic support is really an open question. Even if she does, then the bill will have problems getting passed Republicans in the Senate. And even if that happens, if this bill clears the House with 85% of Republicans against it, Pelosi will have no political cover which she desperately needs on this unpopular measure.
Probably, if she wants to save the bill, the common sense thing is to move the bill slightly further to the right. The one thing that occurs to me is to hack the price tag down to $250 billion available to the Congress immediately. That might be enough to get Blue Dogs and enough Republicans on board.
At this point though, I'd rather avoid an unnecessary expenditure of funds to bail out investors.