Don’t cry for the bailout plan

Bipartisan support for the federal bailout plan has been offset by bipartisan opposition.

A 228-205 vote killed the bailout plan today, with progressive Democrats and conservative Republicans joining to stymie the wishes of the White House and Congressional leadership.

Over the last week, the opposition has been painted as being composed mainly of Republican back-benchers, the younger, hardcore populist conservatives who lack the ties to Wall Street that the leadership has developed over the years.

The reality is far different. U.S. Rep. Rush Holt, the Democrat who represents Cranbury, Jamesburg, Monroe and South Brunswick in the House, was harsh in his criticism last week and others — Dennis Kucinich of Ohio, Peter DeFazio of Oregon, John Conyers of Michigan and Marcy Kaptur of Ohio — (Holt ultimately voted for the bailout compromise.)

Kucinich had distributed this letter to House colleagues this morning, according to his office:

If you are tempted to vote for this legislation because you think it will keep people in their homes, think again: in fact, Treasury will not be able to change the terms of bad mortgages because the Act does not require Treasury to purchase a controlling share in the underlying mortgage backed securities and collateralized debt obligations. The Secretary will be powerless to make any real and substantive change in the terms of mortgage. The Secretary will have NO power to avoid foreclosures and keep families in their homes.

I commend to your attention a letter I received last night from Frank Alexander, Professor of Law at Emory University. Professor Alexander testified before my Subcommittee on Domestic Policy on targeting federal assistance to help neighborhoods affected by the foreclosure crisis. He is an expert on housing law and community development.

Professor Alexander clearly demonstrates that the Emergency Economic Stabilization Act will not fulfill its stated goal of preserving homeownership.
Unless the Secretary of the Treasury is required to prioritize assets that will give the Treasury a controlling share in the underlying whole mortgage, the Secretary will hold bad assets with no power to make them solid again.

Because the rule prohibits amendments, and we do not have the opportunity to correct this terrible oversight, I must encourage you to oppose this bill so that it can be reworked and the oversight addressed. To be sure, the recent past has taught us the valuable lesson that action in haste can be more destructive than delayed action.

And here is Steve Rothman, a Democrat from Bergen County:

“I think there are better ways to fix the economic problems caused by this administration than this trickle-down Wall Street bailout program,” Rep. Steve Rothman, D-Fair Lawn, said after the vote.

Rothman said the bill did not provide enough direct relief to homeowners and banks and should have included a stimulus package to restart the economy.

The Washington Post’s Ben Pershing pointed to five reasons for the bailout’s defeat — four of which were political: poor salesmanship (Congressmen either didn’t know what was in the bill or were concerned that their constituents didn’t know); concern about the upcoming election (enough House members thought supporting the bill would lead to their defeat); the weakness of the president and the power vacuum it has created; and partisan rancor.

The fifth — ideology — offers the most intersting explanation, and one that gets at the heart of the strange coalition that formed and defeated this monstrosity:

The simplest explanation of all for the loss was simply that a lot of members didn’t like the bill. Capitol Briefing outlined last week all the reasons why House conservatives balked at the initial proposal, and the basic point still stands: A massive expenditure of taxpayer funds and intervention in the free market, combined with tough new regulations, simply offended too many conservatives’ most basic principles. And Republicans, being in the minority, feel no responsibility to govern. They calculate that the bill’s failure will be blamed on Bush (so what?) and the majority Democrats.

On the liberal end of the spectrum, most members believe this really does represent a “bailout” of Wall Street and a power grab by the Bush administration, and that the current crisis vindicates their longtime warnings that the financial system was riven by greed and insufficient regulation. For those members, the final package didn’t have nearly enough help for struggling homeowners.

These “ideological” questions are significant and need to be addressed, for no other reason than there is no chance for a compromise unless they are. But, just as importantly, these are the questions the public is asking.

Matthew Yglesias adds an important point, from the liberal side. Given that the bill was badly flawed, and given that the concessions failed to convince Republicans to get on board a bailout proposed by their own White House, maybe it’s time the Democrats played hardball and offered something different.

Given that the House GOP didn’t deliver the 80 (or whatever) votes that Democrats were making substantive concessions in order to achieve, now I really don’t see why the Democratic leadership doesn’t tear this thing up and start writing a progressive bill. Not only might that produce a good outcome in the end, but it also seems to me like the thing that would be most likely to convince recalcitrant House Republicans to get with the program in order to preempt something more left-wing.

Which brings me to Matt Stoller on Open Left, who views the bill as a product of the conventional wisdom, a piece of legislation that had the support of the power brokers from both parties but not the public.

Both McCain and Obama said to do this. So did Newt Gingrich, Blunt, Boenher, and Bush. So did Paulson, Buffett, and the Wall Street boys. And the public said no. Letters against were running harshly against, and it’s not the details that were rejected. It’s that Bush proposed it and no one has any faith that this political order is going to fix this problem responsibly. This is, first and foremost, a political crisis. It has to be fixed through an aggressive partisan and political solution that sticks it to Wall Street. We need a speculator’s tax, bankruptcy protections, and a fast track reregulation of Wall Street in early 2009. But most of all, we need an election.

His approach would be to force a “pitchfork plan” on Bush that would include what he calls a “speculator’s tax,” as well as bankruptcy protections and reregulation of the finance sector.

And if Bush threatens a veto, then it’s obvious he’s lying about the need for an
urgent bailout. And the election will loom.

It is a reality that the Republicans understand, he says.

Boehner is on the floor right now saying this package wasn’t far enough to the right for his tastes, and that’s why he couldn’t bring Republicans along. He’s already negotiating for the next deal. We should do the same. And our Better Democrats are doing that. Echoing Annette Taddeo, Darcy is against this bailout because it doesn’t go far enough to protect taxpayers.

The SEIU plan is here. The progressive caucus plan is here (page one and page two). There are alternatives to this piece of shit. Democrats should not have listened to their leadership, because they are now on record for a massive bailout of Washington, DC. And the Republicans lied to them about being able to deliver the votes.

And so we move forward. This is a big victory for the public.

I mentioned Rush Holt, D-12. Here is what he had to say today (statement was included in an e-mail from his press office):

“I voted in favor of the Financial Rescue Legislation because it was a significant improvement – by including taxpayer protections and strong oversight – over Secretary Paulson’s original $700 billion proposal, and because inaction could have a devastating impact on our already unstable economy. However, the bill failed to gain a majority in the House. Regardless of the outcome of this vote, I still plan to lead an effort to fix the economy in the long term. Now, we still must act in the short term to stand behind our institutions, restore confidence, and protect millions of Americans who would be affected by a continuing meltdown.

As we work to rescue our economy, we must understand how we got to this point. The speculation and greed of Wall Street in recent years – coupled with years of failures, excesses, arrogance and irresponsibility of the Bush Administration and some in Congress – has resulted in the meltdown of our nation’s financial markets. The subprime mortgage meltdown that started a few years ago affect the largest financial institutions in our nation, Bear Stearns, Lehman Brothers, and AIG, which have fallen into or are teetering on the brink of bankruptcy.

President Bush and Secretary Paulson have told us that this rescue must be done immediately or else our fiscal house would collapse. Indeed we must act – but this crisis requires that we act wisely.

If the President had his way again, he would have ridden a wave of fear and railroaded Congress into passing Secretary Paulson’s original three-page proposal asking for $700 billion – with no oversight – to bail out the financial services agencies. I did not support that plan, and while I have reservations about the compromise bill voted on today, after careful and thoughtful review I voted for it because I believe it was a significant improvement over the original Bush-Paulson plan.

This legislation includes taxpayer protections and would not simply hand over $700 billion to the treasury. My constituents rightly are concerned about what they would get for $700 billion. This bill would require Congressional review after the first $350 billion is distributed, give taxpayers a share of the profits or asset recovery, and require a plan to ensure taxpayers are repaid in full – with Wall Street responsible for any shortfalls. The bill would establish strong oversight and transparency, creating an oversight board appointed by Congress and instituting GAO oversight and audits at Treasury. It includes limits on excessive compensation for CEOs and executives. And it would help keep families in their homes by allowing the government to work with loan servicers to change the terms of mortgages.

I still will work to ensure that Congress does more to rescue our economy in the long term, sensitive to the variety of kinds of work New Jerseyans perform from factory to financial district from farm to pharma. There are thousands of my constituents are not traders or high powered executives but still work in these impacted industries. Furthermore, millions of Americans who have retired or are nearing retirement have seen their value of their pensions shrink or dwindle away. If day to day credit tightens up, small business may not be able to make payroll and farmers may not be able to get by until the harvest is sold. We need to act to ensure that retirement funds and pension plans are not devastated by investments that have lost value in a jittery market.

Especially, we also must invest in the real economy and act to shore up the bad mortgages and help American families struggling to make ends meet. One approach would be similar to the Home Owners’ Loan Corporation, a 1930s-era Federal program that shored up a collapsing market in the past. We also must reform the way the FDIC manages risk to accurately reflect the assets that banks hold, rather than the flawed “mark-to-market” requirements that led to this mess. Ultimately, we must change the failed philosophy that favored no regulation and no oversight and allowed this crisis to happen in the first place.

I agree with Senator Obama: “When taxpayers are asked to take such an extraordinary step because of the irresponsibility of a relative few, it is not a cause for celebration. But this step is necessary. Now Washington has to show the same sense of urgency in dealing with the crisis facing Main Street and the middle class by passing an emergency economic stimulus plan that would create jobs by rebuilding our crumbing roads; shore up flagging state budgets to prevent drastic cuts in education and health care; and extend expiring unemployment insurance benefits for those who’ve lost their jobs in this downturn and cannot find new ones.”

I think he’s right about the causes and about the ultimate solutions, but I also think he needs to be more aggressive now in working toward the progressive plan outlined by Stoller.

Here is the New Jersey breakdown, by the way:

• Voting yes were Democrats Rush Holt, Frank Pallone, Rob Andrews and Albio Sires and Republicans Mike Ferguson and Jim Saxton (neither of whom are running for re-election)
• Voting no were Democrats Bill Pascrel, Donald Payne and Steve Rothman and Republicans Scott Garrett, Chris Smith, Rodney Frelinghuysen and Frank LoBiondo