What the Failure of the Bailout Package Means to the Presidential Race

Yesterday Democrats provided most of the votes for the failed financial stabilization bill. Obama supported it. So it's ironic that whatever political benefit flows from its failure will accrue to the Democrats -- and specifically the Democratic presidential ticket.

The bailout package is deeply unpopular with voters. Voters understand correctly that the cause of the America's current economic woes are policies that have benefited the tiny sliver of our population that is super-rich -- including of course the "masters of the universe" who have made fortunes speculating on Wall Street.

The meltdown of the financial markets flows directly from the right-wing economic philosophy and its belief that regulation should be gutted so the "invisible hand" of unfettered market competition can look out for the public good. Unfortunately, as we found in the Great Depression, this economic theory -- which also happens to bolster the short term interests of the very rich -- is a fantasy.

Most everyday Americans have seen their incomes drop, prices rise and jobs outsourced while speculators and CEOs made googobs of money and flew around in private jets. The last thing they favor is using public money to bail out their recklessness. As House Speaker Nancy Pelosi said, they do not support "privatizing" the upside and "socializing" the downside. Their view is that if speculators wanted to be free to make as much as they could on the way up -- they should be free to loose as much as they can on the way down.

All of this makes a great deal of sense, except that if the financial system completely freezes up -- collapses in a heap -- it will be normal Americans -- who got none of the "upside" -- that will lose the most. They will be the ones who get laid off, whose home values plummet and whose pensions disappear.

That's why Democrats -- most of whom agree that Bush's "trickle down economics" has caused the problem -- have been willing to work with the White House to fashion a clean up of the financial mess that helps prevent meltdown in the rest of the economy but allows taxpayers to benefit directly if markets recover and prevents CEO's whose companies fail from profiting through "golden parachutes".

Without doubt Obama and the Democratic Leadership are correct in trying to stave off financial collapse. Anything else would be completely irresponsible. In fact, of course, it was the right-wing Republicans who prevented the success of yesterday's vote -- and ironically, it will be the fortunes of the right that suffer most as a result. Here's why:

* First and foremost, continued economic instability works to benefit Democrats -- and particularly Obama. The meltdown completely ended the post-convention "Palin, McCain the Reformer" narrative that had briefly vaulted the Republicans into the lead. It refocused swing voters on their economic concerns and need for fundamental change in Washington. Even if the immediate financial bleeding is staunched in the next few days, it has served to highlight once again what most voters already knew: that the fundamental underlying problem is not just bad mortgages. The problem is trickle down economics that have siphoned all of the economic growth of the last eight years to the top one percent of the population. The problem is the reality that people's incomes have not increased in the face of rising prices. The problem is the fear that their kids will not live more prosperous, successful lives than they have. The more they focus on those economic concerns, the less prone they are to vote for McCain who has supported the Bush program 90% of the time and who thinks that "the fundamentals of our economy are strong."

* It served to completely undercut McCain's fake narrative that he had "suspended" his campaign in order to "bring the parties together" to solve the problem in Washington -- that he's the guy who "takes charge and gets things done". McCain, of course, did not really suspend his campaign; sat silently through most of the White House meeting called at his request to "solve" the problem; did not play any significant role in the negotiations; and finally claimed to have delivered House Republicans and then failed to do so.

* Continued economic instability makes voters even more uneasy about Sarah Palin. In the face of continued economic instability the last thing voters want at the helm is the candidate they saw Katie Couric interview at the end of last week.

* McCain has lurched from one approach to the crisis to another. That has served to highlight the fact that he is an erratic, unpredictable, gambler that is prone to throw "Hail Mary's" -- a clear contrast to the consistent stable leadership that we've seen from Obama. That is especially important because it undercuts the Republican argument that Obama is "risky". In fact, the crisis has made it clear that McCain is the risky choice - both because of his support for the Bush economic program and because of his personal penchant for risky behavior.

* A sense that things are on the wrong track always intensifies the desire of voters to "throw the bums out". But this melt down does more. It completely undercuts the right wing economic narrative. If this crisis were just about higher unemployment and lost jobs that would be bad enough. But the Republicans at least have their "cut taxes" supply side narrative to address that kind of crisis. They have no narrative to address a melt down in the financial markets brought on by precisely the "deregulation" policies that are central to right wing ideology.

That's the problem facing many right wing members of the House -- and one of the reasons McCain has lurched around to find his footing. If they vote to support a bail out they are acknowledging that their core belief in deregulations and "markets uber alles" has failed. If they vote no, they allow that philosophy to continue failing in plain site for all the world to see.

And remember that throughout his career -- from his days involved in the Keating 5 scandal -- and as Chair of the Senate Commerce Committee -- McCain has been deregulator-in-chief. In fact, his campaign is managed by the lobbyists who helped engineer the very deregulation that caused the crisis.

As Obama has made clear, this collapse is the final report card on the failure of the Bush-McCain economic policy.

From the standpoint of the welfare of average Americans we should all hope that some deal is struck to prevent complete collapse of the financial system. But the fact is that the longer that right-wing Republicans hold up a solution, the more it is likely that Obama -- and many other Democrats -- will be swept into office.

When they do, the top order of business must be to relearn the lessons of the Great Depression with a complete overhaul of the regulatory structures for financial markets, and the adoption of a new bottom up tax and economic program that will increase middle class incomes and invest in the long term prosperity of everyday Americans.

Robert Creamer is a long-time political organizer and strategist and author of the recent book: "Stand Up Straight: How Progressives Can Win," available on mazon.com.

Comments

[tyrdofwaitin]

Dear Mr. Creamer: As usual, you thoughtfully, carefully and insightfully capture the essence of this mess. I'm not as confident in the American people to discern the realities of the current crisis. First, because no one (with some few exceptions) is educating us about what the realities are; for another, Americans are wedged between a wish to stay with the delusion of American supremacy and the reality that the next president will probably be a black man ---- that's a lot of reality for many Americans to stomach.

I'm not a synic but a skeptic and this is what I fear: That our nation's anger (some of it justified --- the high crimes of the past 8 years and some of it unjustified --- the unwillingness of acknowledging our own culpability in what occured over the past 8 years (The Emperor has no clothes"). I fear that many of the decisions that should be made rationally, will assume very irrational forms; that irrational fears will be fed by the Big Lie: say it often enough and people will begin to believe it ---- e.g. "Obama is a muslim".

Granted, there may be more of us than of them but, I'm not confident that everyone that needs to get to the polls on November 4, will. REGISTER, VOTE; GET OTHERS TO REGISTER & VOTE AND FIGHT VOTER SUPPRESSION.

[chillingaz]

Mr. Creamer, I am curious how your blog post would relate to what Newt's trying to accomplish at http://solutionsday2008.com/. What do you think his play is on the bailout?

[cylindar]

You state that They will be the ones who get laid off, whose home values plummet and whose pensions disappear. This will happen anyways. Do you hear me? I will repeat, This will happen with or without a bailout. The bailout will only keep the economy "sort of steady" for a very very short period of time. There is a fire in the theatre and everyone better leave cause no one and no body will be saved. This bailout will not stop job losses, this bailout will not make credit happen, this bailout will not stop house values from plummeting because homes are way over valued and they need to go down ergo the difference in bubble value and real value will equal the loss that all Americans will pay whether bailout or no bailout. Pensions will definitely be devalued as there is no other way because they are partly valued on the bogus bubble and will get pared in relationship to how much of those funds were ivested in certain sectors. The bailout is totally cosmetic.

[thebeerdoctor]

cylindar points to something global investor Jim Rodgers said about this situation. The so-called bailout, he reminded, is like putting a band aide on a cancerous wound. He predicts that even if this give away is enacted, a total economic collapse is only 2 years away.

[wagthedog1001]

FiveThirtyEight.com say Obama is winning all of the Gore states PLUS Iowa, New Mexico, Colorado, and Virginia... Nevada and North Carolina and Florida and Ohio could also swing that way. Even if they don't if this holds, Obama wins. Ohio and Florida will probably be irrelevant.

[joshuahmcdonald]

In addition to the shared urgency of purpose in electing Barack Obama as President we must elect a 60-40 Democratic Senate majority.

As our financial institutions crumble around us, Republicans have rallied around a cry for blame on the Democratic Congressional majority. The irony is that over the last 2 Senate sessions the minority Republicans have set records in the number of partisan filibusters blocking much needed legislation...including financial regulation which may have mitigated our current economic crisis. Over 130 filibusters in 2 years!

A 60-40 majority in the Senate allows the Democrats to legally quash obstructionist filibusters and get our representatives back to work solving the extremely serious problems currently facing our nation.

I urge you to add your voice and your financial contributions to the following Senate campaigns where strong Democrats are facing vulnerable Republicans:
- Alaska: Mark Begich (http://www.begich.com)
- Colorado: Mark Udall (http://www.markudall.com)
- Idaho: Larry LaRocco (http://www.laroccoforsenate.com)
- Louisiana: Mary Landrieu (http://www.marylandrieu.com)
- Minnesota: Al Franken (http://www.alfranken.com)
- Mississippi: Ronnie Musgrove (http://musgroveforsenate.net)
- Nebraska: Scott Kleeb (http://www.scottkleeb.com)
- New Hampshire: Jeanne Shaheen (http://www.jeanneshaheen.org)
- New Mexico: Tom Udall (http://www.tomudall.com)
- North Carolina: Kay Hagan (http://www.kayhagan.com)
- Oregon: Jeff Merkley (http://www.jeffmerkley.com)

[MatoSka]

Get over the role of the political parties in this. Everyone in Congress has fingerprints all over the corpses of Fannie Mae and Freddie Mac. Start looking at the role of the Fed. Greenspan was there during both Democratic and Republican Congresses from 1987 to 2006. "In 2004 Business Week Magazine and others criticized his keeping of low interest levels too long and his concurrent praise of sub-prime lending vehicles such as ARMs as leading to a housing bubble." http://en.wikipedia.org/wiki/Alan_Greenspan

We have no say on the Fed interest rates.

[joshuahmcdonald]

Thanks, but no thanks.

[DrD]

I'm disappointed that Barak hasn't taken a stronger stance on the inequities of the Bush/McCain/Republican free market policies. I'm also disappointed that Barak hasn't taken a stronger stance on protecting tax payers who have been doing the right thing with their finances. I'd like to see Barak offer a plan in which those who took advantage of others and those who gambled receive the consequences of their behavior. The bankers and business men who saw people as commodities to be traded need to be punished, at least, not rewarded. The people who in good faith took loans against their homes to further other endeavors need to be protected as well. I think Barak was too quick to endorse the plan that failed yesterday. There were no guaranteed protections for people who are being foreclosed on. Having people lose their homes will not put money into the economy. I'd rather see $700 billion put into the infrastructure. Why not put people to work fixing roads and bridges? Why not send people to school to develop new technologies to deal with environmental change. Why not train educators to excite kids about learning? Why not build a society where everyone has the same basic needs met nourishing food, decent housing, loving families, and a good education? In the 21st century, we need to be innovative. We also need to learn how to get along, because if we don't, we'll blow each other up. Why isn"t Obama articulating those ideas?

[charon]

What if the Gingrich got the Repubs to oppose the bailout so that a plan being crafted by republican economic consultants could be presented by McCain as his own? He will come in with a plan he claims as his own and looks like he has cred on domestic issues, maybe even offering to save the day? Watch for Rovian tricks here.

[ShaunHammer]

"the right wing caused this bill to fail"

Lets just step through it....228 to 205...difference of 23. Pelosi told the 16 dems in the hottest contended states to vote against it because 80% of their constiuents were against it, fearing re-election.

Barney Frank's own 12 on his commitee also voted nay on it.

Pelosi wanted this bill to tank...

Why did'nt Obama make some phone calls if he was so for it? You know, bring everyone together, he says he is going to do it, why do we have to wait for him to be president?

[themainpoint]

This Harvard economist thinks it was good the bill failed and so do many other experts:

http://www.cnn.com/2008/POLITICS/09/29/miron.bailout/index.html?iref=mpstoryview
(for full story)

Here's what he says:

"...a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents."

[ShaunHammer]

I am also glad it failed. The great depression was prolonged, by years, because of government propping up failing institutions, as we are trying to do.

[BlueTide]

A financial collapse will not end the world. The stock market crash of 1987 and the subsequent savings and loans disaster didn't even cause a recession in the United States. New Deal legislation such as FDIC insurance and better knowledge by the Fed on how the macroeconomy works have kept financial sector disasters from spilling over to the overall economy in the last few decades. The fact is, the current recession was caused by the burst in the housing bubble and higher oil prices, while the financial crisis is more of a sympton rather than the cause of the economic downturn. The best way to bring financial stability is not to bail out the fat cats on Wall Street, but to reinstitute the social safety net in America, increase the limit on FDIC insurance to $300K, help the homeless, implement an ambitious energy program and rebuild American infrastructure.

This whole disaster does undermine the right wing narrative. The longer this disaster goes on, the greater chance that Obama will win in a landslide. I disagree with Creamer that not passing a bailout is irresponsible. We should let the bailout die, elect as many Democrats as possible, and start over in January

[VikingQuest]

The new deal had some good parts and also the parts that setup the largest charity in the history of the world that can't stop spending, the US Government.

[anniegirl9]

Of course it wont end the world, but it will effect it like never before. So many other countries finacial success are tied with ours. As we lose economic strength, so do oour allies in Europe and Japan. A financial collapse would make countries like Iran especially stornger. We should stop treating the enconomy and national security like there are two different things.

Besides, if enough banks fail, the FDIC will have to draw on the treasury to insure the deposits now. Increasing the insurance will mean that would happen faster. One way or another, we are going to be paying for this. My family has already lost the amount per person that the bail out would have costed us in our 401k's.

[pomawg]

Give until it hurts, if he loses we'll feel real pain. Donate: http://www.barackobama.com

[PumaAnn]

The "bones" of the economy certainly led the money markets to plug money unwisely into real estate loans. So that's a definite Republican situation.

But, until Democrats own their part?

Then there's no accountability happening. Trading one unaccountable party for another makes absolutely no sense to me.

[loria]

So you'd prefer to stay with the party who's policies and ideals are the root of this? Were you ever really a Democrat? I can understand you don't like Obama (acutally I can't but I will give you that), but now you seem to hate all Dems. You said once you've never voted Rep and yet you seem to embrace the Republican's love of deregulation. Lack of oversite helped create the mess. I am also sure that the money of the lobbyists spoke loudly too. In the end the little people are screwed (although I am sure others will go down too).

Read this:
http://www.huffingtonpost.com/hale-stewart/whos-to-blame-for-the-mes_b_130044.html

1.) Bailing out LTCM set a very bad precedent

2.) Deregulation exposed banks to unnecessary risks

3.) Deregulation led to the development of an entire shadow market in CDSs

4.) Lowering interest rates to 0% after inflation led to massive speculation in real estate

5.) Lack of any regulatory oversight encouraged outright fraud

All of these combined led to a terrible problem that we are now paying for.

[ShaunHammer]

Can you please show where we have actually "deregulated" the market since 2000?

The congress brought the "regulators" before the house in '04 and the dems just dismissed their claims, its in their own words loria.

http://www.youtube.com/watch?v=_MGT_cSi7Rs

There WAS regulatory oversight, your democrat fellow travelers told the regulators to get lost.
Just watch the video it is C-Span democrats and republicans talking to the regulators.

You live in a delusional world m'am.

[Hastings]

The author of this blog has it backwards. I think that supporting the bailout is going blow up in the Democrat's faces. Funny how dumb George has Obama and Democrats supporting a bailout of the big bad banks and Wall Street. Think about it.

[PumaAnn]

The far left and the far right agree on this. No bail-out. I think that's because they tend, regardless of the side of the coin, to be into rigid thinking.

Today, the polls show that the public did get Bush's message, is following, is very concerned, and wants to see Congress take action to prevent any type of unnecessary panic.

And now the e-mails and calls to congressmen have turned the corner. Since the failure yesterday, the outcry against the "rescue" plan has dropped significantly. It's now about 50/50.

[joshuahmcdonald]

Wrong again Ann. The Conservatives oppose the bill because they are being consistent in their beliefs. The Progressives oppose it because it is a bad bill which will not solve the problems we face.

The Neocons and the Democratic Partisans (of which you are the poster child) support the bill because they are sheep.

[BillOReits]

You're right, who would've thought Dems would be backing a Bush plan while Republicans were voting it down. The question though is who is really getting played here. I don't think Bush would risk further damage to his already tarnished legacy by presenting a $700 billion plan that is really just a trap to benefit John McCain (though I certainly could envision Rove making the request). Considering how McCains, "suspend my campaign" tactic blew up in his face when he couldn't deliver enough Republican House votes, its more likely that Bush has had it with getting snubbed by the McCain campaign and timed this economic bombshell to stick it once again to McCain.
To add to the intrigue is the Republican House which considered nothing except which of its members were more likely to lose their seats if they voted yes. I believe the Republican Party is badly split at this point; its time to go for the jugular.

[dave1111]

$700 Billion bailout, trickle down writ large...Or going away present for Bush? you decide.

[Soothsayer08]

Good Post. It seems that all of the dire warnings of a BAILOUT NOW OR ELSE was just more fear, being used this time to hijack the American citizen to the tune of 700 billion dollars. The Stock Market was and probably still is overvalued. It corrected itself somewhat yesterday. Sure people with large portfolios lost money, but the average Joe or Jane on Main Street didn't. It won't kill the fat cats on Wall Street to lose 5% of their total equity. People on Main Street are losing jobs and houses which is a lot more important. It's high time that the people that really need a bailout are helped.

[dgscol]

Consumer confidence improved in September because the crisis in banking was starting to correct itself. We all felt it was just a matter of time - the sooner the better.

The stock market has recovered half of its loss. Investors are not shaken as much as some on CNN.

FDIC - bad time to increase limits. Do so after reform measures are passed. FDIC is broke. Increasing limits is just another measure like the stimulus package thrown at the voters without a plan. the best thing that can be said is that it is a half-hearted attempt at cauterizing a bank bleed. Better would be to talk outright about serious reform measures that need to be taken. that improves confidence which he seems to be aiming for.

[dgscol]

What sort of business depends on paying payroll from credit????

What do people take us for, dummies?

Absolutely, reform must come first.. Otherwise, people are just throwing their money away bailing them out. Paulson wanted to show lenders that the US will back them. We will, possibly, after they are functioning as they ought, NOT BEFORE.

They (the banks) agree on the rate they charge to one another on loans. If they are uptight, they increase the rate. SO WHAT? They recognize that all their bad loans had occurred because of a low lending rate, just like with the mortgages, and bad loans based on bad securities. This is no crisis, it is merely a correction.

What is clear, at least on the surface, is that finance people in the campaigns, contributing to the campaigns, that lobby for the finance sector of the economy, which is far more robust that anything else, are causing our candidate to say stupid things - perhaps things they hope we will forget later.

[anniegirl9]

"What sort of business depends on paying payroll from credit????"

This is not as stupid as you seem to think. For example, in the construction industry, a company would need to buy most of the supplies for a job and pay for a good part of the labor before it ever gets paid from its customers. Especially in Spring or times when there is a lot of "start up" it is essential to be able to access lines of credit. A company can be very profitable and still NEED a line of credit. In fact most do.
I handle both payroll and accounts payable/recievable for a commercial roofing co. so I know exactly what can happen with a credit freeze. This year alone we had to file a lien on a company that owed us close to a million. We finally recieved payment, but for a small company, waiting an extra month or two would have killed us if we did not have a line of credit available.

And if you think any small business can start up without credit lines, you're crazy.

[etcetc]

i'm a small business owner, and we rely on credit to pay all sorts of things.

my business is given work on a per project basis. we do the work on a 25% advance of the total invoice. Then we get paid the additional 75% 90 to 120 days after the job is done. So how am I supposed to pay my employees during that time? I take out a short term loan to meet the payroll based on the check due to me, and then I pay the bank back. This is common.

Since this credit crunch started 9 months ago, my credit lines have been frozen & it has stalled the growth of my company.

you've never run a business, have you?.

And you have one more misunderstanding. the banks didn't give the loans because the rates were low. They gave the loans because they wanted to get the loans so they could sell those loans on to other banks. they would prefer rates were higher because then they'd make more profit. what low rates did was make homes more affordable.

but the banks made the huge mistakes here- they gave loans to people who were making no down payments AND people who they knew would have trouble making payments. They did not care about this however- they knew if they gave out a loan, and then sold off the loan asap, it would be likely to explode in another companies face and not theirs.

OBAMA