Gray Monday

Something of a surprise: the House of Representatives voted down the revised bailout package today, after the leaders of both parties had endorsed it. Here is the final tally:

	Ayes	Noes
Democrat	140	95
Republican	65	133
Totals	205	228

 

Our own Herseth Sandlin voted no.

Why did it fail? The answer to that is simple: the United States is a Republic. One Congressman observed that the mail and calls coming in were a thousand to one against. When the Vox Populi is that loud and clear, it is very hard for our representatives to ignore it.

Why was the bill so unpopular with the Populi? The answer seems to be that it was widely perceived as an enormous expenditure of public money, which it probably wasn't, on behalf of a bunch of fat, greedy, money changers, which it was.

That is not a very good reason for voting the bill down. The Administration did a poor job of explaining that this wasn't money spent and gone. The U.S. would have taken a heavy financial responsibility, but it would also have acquired billions in assets. Almost certainly the value of those assets will eventually recover, and most if not all of that money would be returned when Treasury sells them back. We might even make money on the deal, as has happened with previous bailouts.

To be sure, a lot of financiers would have benefited, and some of them are the very people who are responsible for all the bad loans. But if you think that this is a real financial crisis, then that shouldn't matter. If your house is burning because your fat, stupid brother-in-law is a careless smoker, and frankly it would serve him right to go up in flames, you still have to put out the fire.

Should Congress have approved the bailout? If you think that this is a genuine financial crisis, the answer is probably yes. I say probably, because no one really knows if this action would have worked. My favorite economist, Robert Samuelson, argues that current economics aren't of much help here.

What we are witnessing, in the broadest sense, is the bankruptcy of modern economics. Its conceit has been that we had solved the problem of stability. Oh, there would be periodic recessions, but the prospects of a major economic collapse were negligible because we knew how the system worked and could take steps to prevent it. What's been so unsettling about the present crisis is that it has not conformed to the standard model of business cycles and has not submitted to familiar textbook solutions.

If he doesn't know what to do, I am not confident that Treasury Secretary Paulson does either. But at this point you have to ask what else we might try.

If you think that the current financial turbulence is just a case of a failed business model among a lot of businesses, then it is probably best to let it run its course. Weak and stupid institutions will fail and be gobbled up and replaced by stronger, smarter ones.

So which is it? I don't think anyone knows for sure. But it looks like the biggest financial institution in Europe is about to fail, and markets all over the world are tottering. If really big piles of money are smoldering all over the world, then that is a good sign that we have a real crisis.

With some trepidation, I think Congress should have approved the deal. Nobody seems quite sure what to do now. This may be the election that costs us a generation of economic growth before all but a few mail-in votes were received. I am guessing not, but the small part of me that liked the X-Files quivers at this news. The stock market fell 777 points on the news from Capitol Hill. Isn't that the number of the Lord in Revelations? If Christ is really coming back just now, I hope he is prepared to invest.