Fishing in Troubled Waters

As the events of the past 24 hours have shown, the Republicans lack both the leadership and the unity to bring home any variant on Paulson's proposed bailout deal. This has been a special fiasco for John McCain, and a richly deserved one.

With the Republicans now in thorough disarray, the question now is whether the Democrats have the wit, the nerve, and the unity to do this right. As the politics stand today, a plan may well have to pass Congress mostly with Democratic votes. If the plan works, the Democrats are heroes. If it fails, they are goats. So it had damned better be done right.

But first, let's take a moment to savor the Republicans' self inflicted political wounds. McCain's ploy to cast himself as an above-party leader in the financial crisis, and incidentally to wriggle out of the Friday presidential debate, backfired. The White House meeting was hastily contrived to help McCain, but all it did was help derail the deal.

Far from demonstrating his claim of putting country above politics, the caper was pure opportunism. Contrary to his high-minded claim to be "suspending his campaign," he continued to run the negative ads and his surrogates continued to trash Obama. He wouldn't even say what plan he'd support, and sat largely like a stone at Thursday's White House meeting while Obama joined the discussion and tried to seek common ground. The meeting was supposed to showcase McCain as a leader, but that role went to Obama.

You can just imagine the thinking over at Team McCain. Hey, let's send John to Washington to consummate the bailout deal. He can look really presidential, we'll say we're putting country above politics, and we can even bump Friday's debate to October 2, and kill the Palin-Biden debate as well. High fives all around. Ooops.

And imagine these turkeys negotiating with, say, Putin.

Is there a silver lining in this mess? It sure signals severe disarray both in the McCain camp and in the Republican Party. But what about the future of the economy?

The emerging House Republican plan for a "private sector solution" (backed by more government insurance and tax benefits) is pathetic. It's not really private at all, and it won't solve the problem. But what will solve the problem?

A better plan would have two core elements: First, most of the government money goes to refinance mortgages rather than buy up bad paper. Once the mortgage market stabilizes, some value returns to the bonds backed by mortgages. That way, homeowners are the primary beneficiaries, not the incidental ones. Second, government takes a majority stake in the major failing institutions, takes a good look at their books, and only then pumps in equity capital as necessary. When the crisis passes, government closes the ones that are beyond repair, and sells off the good bits.

Some Democrats are still hoping to salvage some variation of the Paulson. But the Republicans have done them a favor. It's time to give that approach the decent burial it deserves, and start over.

Since the House Republicans have deserted the field, the Democrats might as well step up to the plate and do it right. If it takes another week or two, that's fine. This is not about rescuing the stock market day to day. It's about fashioning a program that will work.

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Robert Kuttner, co-editor of The American Prospect and Distinguished Senior Fellow at Demos, has just published Obama's Challenge: America's Economic Crisis and the Power of a Transformative Presidency (Chelsea Green). He is blogging daily about the election and the economic crisis at www.obamaschallenge.com.

Comments

[OkayLady]

It is the biggest swindle in history! Look away from the snake charmers and their words of panic and you will see economist around the world are coming to consensus:

1. The plan presented to Americans was a swindle. 2. it will ruin the US economy with hyper inflation
3. It is Unnecessary!

Tax all stock transaction .25% and crack down on every form of speculation so they can't do it risk free with a small percentage of borrowed money anymore. This very tax worked here for decades - it works in every other major financial capital. To H E ! ! with us bailing out the rich bankers and CEO's who created this. I am done.

ENOUGH !!!!!!!

[Roberto2201]

A news headline of the near future if no agreement is reached:
"China gains majority stake of US in debt-for-equity swap."

[ProudLiberalDan]

And THAT is a national security issue. Just how much China and Saudi Arabia may be able to control us and our foreign policy because of their ownage of our debt.

George Bush's run the deficit policies high policies have made us less safe both at home economically and abroad. All so the already wealthy could get a tax cut they didn't need.

[paixa3]

Saudi oil already controls us. The Chinese are not going to be short term opportunists, they will look longer term and just get the USA assets that benefit them. Not all assets in the USA, nor the country for that matter is really wanted.

[mheister]

Mr. Kuttner has the right idea. I hope the Dems are listening.

[blood1]

It is so sad, that with the entire world watching, as they see a man who wants to be a "maverick" bounce around and with no economic experience try to be "the Lone Ranger". , that he hasn't read (paper...obviously no fax on the bus).

McCain likes to gamble and what he is gambling now is that the American people will gamble with him. The fiasco of the past 2 days was a gamble, as he stated there would be no politics in this...so the failure that was a "GOP group demanding more for themselves and their constituents...nope, I don't see any politics in that.

Sorry, a POTUS should be relying on gimics as a rule of order. The GOP response that this is a campaign gimic and he will act as a rational person if he is POTUS...then the next question: How do we know that.?..it certainly has not seen in the past 2 weeks...are we are suppose to have short term memory loss? and base our decision on his POW status...no, that card was played early in this game and you don't get to play the same card over and over again.

This is unsettling and in no way would make an independent voter (or any other Voter) with a rational mind who will think this through will want McCain to lead their country....sorry GOP...it just got too irrational and McCain can no longer be trusted with my vote

[paixa3]

More importantly, McSame is not to be trusted with the country.

[Oldtimer]

Another great post Robert.
Now go on TV and repeat it ad nauseam before the Dems let the Republicans steal populism
the way they stole money from the middle class.

[Bfidler64]

Just goes to show you how little clout Cheney and Bush have now.

[paixa3]

That is naieve. They got the ball rolling with their criminal friends to get a cool 700 billion usd.

[chaz]

Why aren't you on TV? Oh that's right the national media is liberally bias. Just ask Morning Joe and his side kicks. Another thing hasn't President Clinton and Obama suggested programs similar to yours?

[ScooterLiddy]

He was on Hannity and royally kicked Hannity's A*^#!!

[ScreenName05]

Sorry, my bad, I thought the pundits finally got it, that they were going to discuss a plan the Democrats might put forward to solve the problem. Not here, again. No one cares about reports about the stupid horse race. John McCain wins again, because the only thing anyone can talk about is his stupid blunders. They are still talking about John McCain. Who cares? Where is some reporting on the issues? Where are the ideas needed to save this country. Stop reporting the horse race and start reporting on the issue before the country drowns!

[CenterOfMass]

Did you see the paragraph that begins: "A better plan would have two core elements..."?

[athenasword]

First of all, he is ending up scoring a few points. Republicans are having a series of press conferences right now.... saying how "constructive" JohnMcCain's role has been. It was helpful to have him there and he offered good "suggestions". They also said there was no agreement yesterday... Geezus, talk about DAMAGE control.

What I am wondering is just who and how many "conservative House Republicans" make up this litte quorum. It doesn't seem like a huge group - just a few McCain buddies.

And, did the McCain campaign engineer this whole new proposal, so there could be something for him to fight for and ultimately give him a reason to vote against any proposal (bein' a mav'rik and all)

[MThomasNC]

Gingrich was on FOX encouraging McCain to join the 120 conservative study group republicans to oppose the Paulson plan as well as any proposals offered by house and senate. They are too oppose it on principal so they can have something to campaign on. These repubs know that they don't have the votes nor any workable proposals, but they have to biggest mega phone - FOX news.

[bayside]

Why are dems on wall street side..They insist we the people ,bail out the crooks theyknew this was corrupt and made billions from it and expect us to bail them out..I am disappointed Obama is not standing up ,bet he is working behind the scenes,but I applaude MCCain for saying no bailout.. They made this mess, they profited from this and they need to clean up their own mess. Not us..Yes we will go into a recession, flash we already are because of our irresponsible republican and dems spending us into oblivion with no way out..So lets build it back up without the corruption at the highest levels. Plant your victory gardens, barter services and food, learn new skills and share with others because when you share, you not only feel good, they are grateful and pass that on to others. When you share what you have you get what you need.. If god made us ,then we are all brothers and sisters ..When it all dies down we will rise up better than ever.

[dirtystrat]

"Why are dems on wall street side"

Are you kidding? Because they have been fleecing the American taxpayers through Fannie Mae and Freddie Mac for years. Follow the money.

[paixa3]

The dems have caved on EVERY issue since 2006. Before that, they just did not get the OPPORTUNITY to cave.

I am an independent and will NOT support either party.

NO BAIL OUT. LET THEM SINK !!!!!!!!!!!!!!!!

[kathy001]

I whole heartedly agree with Mr. Kuttner's plan. The way to stabilize the mortgage market is to rewrite all those cr@p mortgages so that homeowners can actually make their mortgage payments. Nothing else makes any sense! If they keep hanging on to all that bad paper the properties will just get put back on the market but no one will have the credit left to buy them - at any price. This entire deal stinks.

[blackmatch]

Did anyone else note the degree of contempt (for McCain) that Harry Reid demonstrated last night, when Reid said that that "..McCain's comments regarding the bailout plans contained nothing of substance..." ?

[Jazzbeau]

Maybe that's because McCain's comments contained nothing of substance. Just like the 'suspending his campaign' ploy so he could ride into Washington on his white horse to 'save' the bailout by sitting like a statue of Buddha through the White House meeting and then attempting to blame Obama and the Democrats when his grandstanding failed. Also, don't forget, he and his surrogates spent all weekend and much of Monday heaping praise on him for his being the major success factor in the agreement that was going to be reached on Monday. The very same agreement that failed on Monday because members of McCain's own party voted against it two to one.... Oops! That's real leadership, eh?

So now his 'hail marys' include canceling the first day of the convention, picking Palin, Attempting to cancel the first debate, 'suspending' his campaign, rushing to Washington (a day and a half after he announced he was rushing to Washington) to try to be on time to take credit for something he had no role in, and blaming the Democrats when his stunt failed.

Sorry but I don't want anyone of his temperment and judgment, especially with his Ready, Fire, Aim approach to major decisions, anywhere near the nuclear codes.

[Paul]

Kuttner's plan makes sense. Find a way to keep people making payments on their mortgages - even if at the lower starter rate for a while. Why isn't someone proposing to nationalize those institutions that are failing so that they can be dismantled with some intelligence instead of just being bailed out to create more chaos?

Where is the Republican Harry Truman or Teddy Rooseveldt?

[fpie]

By not saying what his position was McCain can claim to have saved the day no matter what happens. He has foiled both Bush and Obama and single handedly saved democracy and apple pie from the ravages of ... (fill in the blank) Not to mention that he was a POW (he would never mention that)

[paixa3]

LOL...fill in the blanks....kudos, good one.

[Gary50]

I read that come October first hedge funds will have to come up with billions of dollars in cash to stave off bankruptcy. This is part of the reason for the urgency. A deal being reached two weeks from now might allow the entire economy to collapse. Sounds to me like Osama Bin Laden wins with a major assist from his partners the Republican party. Ronald Reagans dream of drowning the US government in debt so no social programs can ever lift up the poor and middle class has been achieved, and third world status for the United States is a distinct possibility.

[apduncan1]

Say, is this similar to ENRON not being able to raise loans to cover its earnings projections? Do we hear an echo?

[Pdubya]

yeah, but Texas exercised its constitutional state supreme court rights and prosecuted them.

where is the supreme court on this?

In the plutocratic Dem and Repubs pockets, thats where!