Monday, September 29, 2008

The first of many?

Fareed Zakaria calls for Palin to bow out. Will there be a cascade effect? I don't think McCain could survive it.


Blogger Robot said...

Scantron, you called it: congressmen and women just couldn't go back to their districts and hope for reelection without a "no" vote. This is an incredibly odd turn of events.

4:26 PM  
Blogger Robot said...

Looking at the roll call votes, it's clear that what sank this thing was a substantial number of Democrats not signing on. A majority of Dems in Texas, Indiana, Arizona, Georgia, Kentucky, Louisiana, Mississippi, Oregon, Utah, Vermont, and Hawaii voted against the bailout. This not mentioning the substantial numbers in Ohio (including Kucinech and Kaptor, two of the most left-wing Dems), California, Missouri, and Maryland. Why these people voted how they did I have no idea. Perhaps we'll find out in the coming hours or days. This one could have gone through given greater Democratic party loyalty, and it will be interesting how the party (which I think is planning on, like, governing for the next four years or so) will treat this mutiny.

4:37 PM  
Blogger Robot said...

Ok, reading a bit more--I am still unsure what's up with these Democratic nays, but it seems more clear to me that the Republicans attempted a spectacularly cynical move that backfired: pull out at the last moment and hope that there are enough Democrats who vote for the bill that they can pin whatever happens on them. Is there any doubt that if the bill had passed with 30% Republicans saying "nay" they would have been blaming Pelosi's speech? No fucking way: they would have used the bill's passing to attack the Dems as socialists and fools, etc. Now, asit seems to me, their plan failed and they have to go back to the drawing board, explaining to their banker buddies why they didn't hold up their end of the bargain.

4:48 PM  
Blogger Scantron said...

Thanks for turning one of the threads into a bailout discussion; someone needed to say something.

The Democratic party is being extremely dishonest about who's at fault here. I think you're right on with your analysis of the Republican (failed) strategy (and the Pelosi speech excuse is one of the more ridiculous I've heard), but the Democrats could have changed the vote. The point is that the people who are the *most* Democratic of Democrats (Kucinich, Barbara Lee, John Conyers et al) voted with the most hardcore Republicans. There is a major difference here which I will discuss later -- suffice it to say I do not believe this was the fault of the "extremists" on both sides. (Well, technically it is, but in this case the extremists represent the public.) The bailout bill was a bad one (will qualify this later) and these people counted on their jobs being at stake, as you mention.

All the economists I read (Delong, Krugman, Thoma) seem to agree that this is a disaster that should be laid at the feet of Republicans. The screwy side of this is that the White House and the leaders of both parties all become part of the "sensible crowd." This seems intrinsically wrong to me, but I am still reading all the analyses.

The McCain campaign is getting redonk on this:

They should try explaining why all the delegates from AZ and AK voted no.

6:22 PM  
Blogger Scantron said...

The nominal answer to the question of left Democratic opposition can be found in what Sirota has been writing the last few days and on the Progressive Democrats website. There was a "skeptics caucus" that was opposed to this on egalitarian principles. Whether they had any non-ideological motives is not clear to me.

6:26 PM  
Blogger Robot said...

Sullivan posted just an awesome video:

6:57 PM  
Blogger Scantron said...

Having looked at the numbers a bit more, I think there is way more to this than Republican calculating. 2/3 of endangered congresspeople voted no:

That's Reps and Dems.

I'm inclined to see this whole thing more in terms of some of the EU referenda, e.g. the Ireland Lisbon veto. There is the basic democratic problem of mass populist pressure in the face of elite opinion. Ezra Klein said today that "partisanship" prevented political action. I read another comment that retiring congresspeople, "who are the most neutral arbiters of the public good," voted overwhelmingly for it.

I'm not sure how to take this. The "no" vote just *is* the political action. The default action is for the federal government to give exactly what Bernanke and Paulson want with no strings attached and with no debate. Sometimes, opposition is politics in the truest sense, not just partisan deadlock.

As for the supposed "neutral arbitration" of retiring members, I have just the opposite inclination: those unbeholden to a constituency will continue to vote for legislation in the interest of their usual paymasters. This may not be how the Federalists envisaged things. They didn't want too much popular interference, and they wanted government elite to be endowed with enough authority to override popular sentiment. But I think that even Hamilton could agree that sometimes you get to a point where elites are running things to the vast majority's detriment. (Egalitarians and radical democrats are of course much more inclined to view things this way.)

Lawmakers in contested areas voted resoundingly against the bill. A fortiori, it would have been defeated even more decisively in a referendum. The press is basically taking it for granted that it is unpopular.

Some are saying that while small-d democrats and populists are cheering this as a show of popular force, it is either a) ideologues' and schemers' fault, or b) proof that populists are nothing but resentful bastards who are willing to bleed the rich while the economy goes down.

Well, I'm not sure what will happen to the economy because of this bill. Today wasn't pretty, that's for sure. (And if there's anything more loathsome than resentful populists, I might add, it's Wall Street traders cheering and moaning when their big daddy government comes in to help them or abandon them, respectively. One trader said today that the "money was being held hostage by politics." Fuck you, honestly.)

One thing that I think we can say pretty conclusively is that today's bill was not a good one. Yea-voters will claim it was the "best possible bill." I find that highly doubtful. Why? Because the White House did nothing to oppose it. (House Republicans were going to be against any bill on the grounds that it was nationalization, pure and simple; or, if we believe the reelection narrative, it's because they feared their constituents sacking them because they bailed out the rich.)

The Democratic leadership talking points were that the White House gave them a "non-starter" with no oversight for Paulson and they came up with a better bill. Pardon me if I think that's utter crap. If this Naked Capitalism post is true (I almost hope it isn't, but don't doubt its plausibility), the Treasury Dept held a conference call with analysts and told them how all of the supposed "oversight" bits -- tranching, limits on executive benefits, accountability from Paulson -- were actually bullshit:

The Democrats did not have a better bill. Plus, let's keep in mind what I said before: they were essentially lining up with the Bush administration. I'm not naive enough to think that Bush wouldn't interfere in the free market to save crony capitalism, but no nationalization plan by Bush would ever attempt to help ordinary people to the disadvantage of the wealthy. The Democrats' cooperation, and the fact that the White House didn't object to their "new bill," made them immediately suspect.

So, great, Mr. Populist, what now? This is indeed a good question. Predictions would probably be the best thing now, since I don't know what else to say about the vote. It probably bodes well for the Dems, though. The Republicans were afraid to vote for this thing and they still fucked up. John McCain looks like an utter loser for his Obama smears. Obama seems to be holding aloof, but that may be all he needs to do til November.

11:03 PM  
Blogger John Liberty said...

Robbie, Scantron: This has been very enlightening.

11:04 PM  
Blogger John Liberty said...

i would just like to point out that that economist from council of foreign relations, sester, agrees with me about the bailout plan(see 'Thoughts on Mother of All Bailouts')

I would also like to say my opinion that problems in the financial economy are accelerating severely. Even if the bill is passed, it will do little good at this point. The cake is being cooked...the crisis is now systemic....even if the big banks are saved via the paulson plan..the little ones will not be spared...and 1000 of little banks will go belly up....and while they are not guardians of the systems, the sheer number of bankrupticies will be the monetary equivalent of one huge bank failing.

there is really no hope of stopping this thing short of nationalization of the market, the banking system, and the spending of approximately 2 trillion dollars on bad assets alone(we've only committed 700 billion)

you must also remember that the financial economy is only 20 percent of the economy as a whole.

70 percent of the economy is the consumer - consumer spending. that shoe has not even dropped yet - and when it does get ready for some REAL CARNAGE. Just a preview:

-23 million out of 50 million households with mortgages are "underwater"

This is gonna hit main street, and very hard, and is gonna feed back to the banks in a loop like fashion...further exacerbating the crisis.

This is like the 4th inning - just the esoteric, now bad assets.

11:26 PM  
Blogger John Liberty said...

we are probably closer to the collapse of the government than at any other time in our history.

what a stupid world....

11:28 PM  
Blogger John Liberty said...

also. goldman and morgan will not survive. this conversion to a bank holding company in order to acquire other banks in order to get deposits is ridiculous. it can not be done in the time frame...they are on death watch...their entire business models depend on daily leverage and loans...when that dries up...they are at risk of collapse.

someone has to take them over.

11:34 PM  
Blogger Robot said...

I'm with you Liberty re: consumer spending. I think everyone (myself included) is just not prepared for the reality that this bailout is to prevent something akin to depression and that whatever happens we're looking at a sustained a painful recession with one possible scenario being a Japanese-like lost decade. The best case scenario: Democrats grow a pair, propose something to get their left wing in line, and just ram it home. If it happens after the election, it happens after the election! The idea of a massive infrastructure overhaul coupled with a green revolution is looking more palatable with every second that ticks by.

11:58 PM  
Blogger Austin 5-000 said...

Don't have much real substance to add to this excellent conversation, but, in hopes of starting to participate in this blog again...

The next few days will be interesting (i.e., scary) for finance watchers, that's 4 sure. Focusing on presidential politics, if Mccain isn't completely discredited by recent events I will be very surprised.

1) "suspended" his campaign without suspending his campaign in order to
2) not accomplish jack shit in the most public manner possible and
3) not succeed in the debate, all of which was a prelude for this week, during which he
4) completely dropped the ball while
5) claiming that he was behind all of the success that NEVER OCCURRED (dunno what the numbering was for)
The current Mccain talking point is that Obama "phoned in" his participation in the bailout process. Ironic, considering the fact that Mccain himself believed that phoning it in was sufficient.

12:02 AM  
Blogger Austin 5-000 said...

It occurs to me that you need some sort of outrage or emotion in order to comment on political events as we do here; I am again feeling small bursts of outrage at the SHIT that is going down in this here country. How lame, but I think I'll nurse it.

12:04 AM  
Blogger Scantron said...

Austin-5000: Use your aggressive feelings, boy. Let the hate flow through you.

Glad to have you back, too.

Robot is on to something with the House Dems -- can they formulate a package to capture the entire Democratic party and maybe even a few of the Republicans? And then challenge Bush to dare to veto it?

I'm a bit confused about the nay-voters' expectations of Wall Street. Everyone knew the only possible outcome of a rejection would be a stock market plummet. Is that just a chance they were willing to take, given their fear of constituent revolt, or did they not expect the turnout that happened? I imagine there is some sort of game theoretic model that would sort out a lot of the deliberating and bargaining processes that happened on the floor. A commentator pointed out on MSNBC that when it was apparent that the bill wasn't going to pass, even more members of congress switched to nay to be safe. Was there a tipping point here? Was it ever possible for the leadership to save the vote?

Finally, I mentioned to Robot the other night the self-selection bias inherent in people calling in to oppose the bill. Even though the opposition led 100-1, could this really somehow not be indicative of general public opinion? The Post brings this up in their otherwise awful editorial today. (Shorter Washington Post today: Politicians fail to save economy from dumb populace. Dana Milbank in particular oozes contempt for those who would oppose the Fed on this for any reason.)

I'm actually still sorting through the two competing narratives of "wingnuts vs. pragmatists" and "incumbents vs. retirees." Sometimes the commentariat wants to put it one way (when they're blaming the demos for its ignorance when it exerted pressure on incumbents), sometimes another (like David Brooks, who sees all of this as ideological nihilism -- although he also says Republicans did the "momentarily popular thing").

1:18 AM  
Blogger Austin 5-000 said...

As this New York Times graphic shows,
the vote went differently for house members in contested districts depending on which side of the aisle they sit: Republicans at greater risk voted against the bill less often (60% of the time compared with 67% for the average repub) while Democrats at risk voted against the bill more often (60% compared with a 40% average).

This is interesting: you would expect those at risk to push towards the middle, leading to a greater level of support for the bill by both parties, but that's not how congressional Democrats are behaving. I suppose, during times like these, a different dynamic kicks in: risk-aversion. The at-risk Dems just don't want to take the blame if something goes wrong.

10:48 AM  
Blogger Scantron said...

Could you re-post the link? Can't make it work. Also, what is pushing toward the middle when there is only the option of yea/nay?

11:04 AM  
Blogger Austin 5-000 said...

The middle would presumably be accepting the compromise that Congressional leaders and the Bush administration forged, so it would be a "Yea". On the other hand, there are plenty of principled centrist voters who are going to be against this plan, so maybe the middle is actually a "No." It's just interesting to me that at-risk Republicans behaved differently than at-risk Dems. How would u explain it?

12:25 PM  
Blogger will said...

The irony of the trader comparing this to a hostage situation is beyond my comprehension. Not because I see it as an entirely incongruous analogy, but because it would be a much more accurate one if the principle roles were reversed. It seems to me Paulson appeared on national television and said "If you don't send me $700 billion within a week, you'll find Wall Street in itty-bitty pieces." The crash yesterday wasn't caused by $700 billion dollars that wasn't there, but by Paulson saying that it would occur, and I can't imagine this was accidental on his part. He created an incredible self-fulfilling prophecy that was assuredly win-win for him.

Please don't mistake this as me saying that inaction is an option: clearly something needs to be done to fix the sorry state of the financial system (though I don't think that's a $.7 trillion bailout.) I'm simply sick of the press citing yesterday's crash as additional evidence of the need for an immediate injection of cash, when the cash itself had nothing to do with it. If I were able to get all major media outlets and the leaders of both functional branches of government to shout from the rooftops that the market would collapse if pigs didn't fly out of my butt on friday, then i'm sure, come friday, all eyes would be trained on my asshole.

9:28 PM  
Blogger The Sheriff said...

I so want to be in on this post, but I can't think of much to say that hasn't been said. Maybe if I ramble for a moment or two I'll pick up a thread...

I think one of the interesting things to consider is how this bailout may be been necessary. Not in the form it was presented to be sure, but for structural reasons. Past financial crises within the twentieth and perhaps nineteenth centuries seem to fit well within marxist models of surplus value and extraction (I don't mean to impute my politics on this, i'm just thinking of the model) David Harvey has been talking a lot about "Accumulation by Dispossession" recently, and as part of his lectures he's noted how the crisis of 73-74--very similar to the current one-- was solved by finding a new source of accumulation from which to found a surplus for the necessary growth of capital. Like sharks that die if they stop swimming, the structural adjustment plans imposed first on Mexico and eventually the rest of the world provided the "bail out" then, and a tidy restructuring of the world system. It seems however that we've tapped that dry at this point, and for the past 15 years maybe most of the development of our economy has been intensive through housing, debt, and the trading of these debts, etc. This was a horribly mismanaged process to be sure, and irresponsible at best, but at the same time it seems clear that the sort of growth we witnessed on that model was unsustainable and structurally unsound. Whatever the reason there's a problem now, and no new sources of capital territory immediately apparent to expand into.

The bailout was going to fulfill that role, temporarily perhaps, at least insofar as it looked like the direct extraction of cash surplus from the people (which is profoundly grotesque if you think of it that way). With it not going through, I'm interested to see
A) What the true effects of a crisis of this sort will be failing comprehensive bail-out measures
B) Where the frontier of capital accumulation and surplus extraction is set to move within the next few years.

12:30 PM  
Blogger Scantron said...

Thanks for the update Austin. No, I think your explanation makes sense, I just didn't understand what the 'middle' meant in a two-choice scenario.

Will is right that there's a weird loop effect going on. The other annoying tactic now is to say, "We lost a trillion dollars yesterday, you happy now?" Of course, *we* didn't lose a trillion dollars, shareholders did. I'm not ignorant of the vast network of connections between stock values and things like credit and 401(k)s, but a trillion dollar loss on Wall Street and a trillion dollars from an already existing pool of taxpayer revenue are two different things.

Sheriff is right about the vast structural aspect of this; in this respect I really just need to buy the excellent Andrew Glyn, "Capitalism Unleashed" volume I read six months ago, which explains very clearly the ship from production/consumption growth to financing and credit consumption.

1:29 PM  
Blogger John Liberty said...

buy mortgage backed securities, now. buy asset backed securities, now. the markets are fundamentally changing.

too bad this shit is restrictied to retail investors for all i know.

3:06 AM  
Blogger The Sheriff said...

Liberty, why do we need/want to buy these things you mention here? I'm sure there's a good reason, and perhaps the markets are fundamentally changing, and I'd like for you to tell us more on those issues. With regard to "Buy X, Y, Z" I don't think any of the members of this esteemed Crew are investing right now, much less in possession of money to invest.

12:07 PM  

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