Dead for Now

Down goes the bailout. My guess is that the White House comes through with cash, probably at the direct urging of Obama. Though my opinion on the auto-bailout is complicated (I was probably a bit more skeptical than the average progressive Dem), one has to wonder what things look like in the event of a GM collapse.

Detroit

So the debate over saving Detroit seems to be nearing a middle.

Both Mitt Romney and I grew up around Detroit, so can claim great authority when we opine on the state of American car manufacturing. The difference is that Mitt gets his opinions published in the NYT. Which doesn't really seem fair...but I digress.

His editorial pretty much says it all. The standard narrative runs something like: the Big Three have been running an unsustainable business model for decades now, hamstrung by their unions and seemingly hapless in the face of superior foreign designs. Of course they're failing, reduced to begging us to "buy American," in that we should prefer saving their jobs to purchasing the best available product.

The rub is that even though I find that narrative hard to disagree with, the implosion of the American auto industry would (will) plunge Michigan, already far from the shining economic center of the nation, into a financial wasteland of such remoteness it is hard to imagine how it will ever emerge. Think back to the portrait of the city of Flint in "Roger & Me." Flint is still like that, only more so. I shudder to imagine that malaise spreading across the entire state.

Bailing them out, again, won't save the companies for long. It will, however, stave off the day when Michigan plunges into financial collapse.

**UPDATE**

The AP reports that the bailout deal is on the verge of death, as "negotiations" are reduced to acrimonious finger pointing.

Here, another AP report does a better job of making my point from yesterday- if you think Michigan is in bad financial shape now, wait till the car companies fail and local municipalities lose 30% of their tax base. Numbers do so much to bolster an argument...

Unchecked

So for anyone who spent today under a rock or at work, it seems clear that the $700b we threw into our recent bailout package has been, to use John Maynard Keynes expression, "...chicken feed to the dragons..." The global crisis unfolding itself is now simply frightening in its scope and scale, and is promoting what I believe are unprecedented steps by the world's major governments to save us all from another depression.

A brief summary of things that have gone terribly wrong today would have to include: The British government nationalizing its banking system, purchasing shares of the eight largest banks in Britain and guaranteeing inter-bank loans in The Times. A globally coordinated reduction in interest rates between American, British, Chinese, and European banks designed to boost market performance in HuffPo. Another $38.7m loan to AIG in addition to the earlier $80m+ bailout in the NYT. Russia has stepped in to prevent the financial collapse of Iceland in Newsvine. Stocks across nearly every market in Asia continued to lose value on Drudge.

The Dow has just closed, down 189.

It is impressive to see the world's leaders actually working to coordinate their response to a problem that is now, clearly, an international one, and just as clearly really not under anyone's control.

There is little to no way to know what comes next, but here is the story in which Nancy Pelosi makes the first call for Bailout Plan II.

Bailout Collapse

Looks like the bailout bill failed in the House. I’m not entirely sure what happens from here. Do they bring it back up for a vote? According to Marc Ambinder, more than 131 Republicans and 94 Democrats voted against. The Dow is dropping like a rock. That’s a pretty large block – I’m not sure that they can really bring this back from that.

Paul Kruman has said that the bill is sufficiently not terrible to be worth passing. It’s not exactly the second coming of the New Deal, but it’s what’s needed right now. If nothing else, it was a pretty remarkable step back from the original Paulson plan. Dodd and Frank were under some pretty tight constraints in what was politically doable, with the president and the Treasury secretary where they are.

The bill really had to have bipartisan support – Krugman talks about this above – because without it, the dissatisfied party can always go and hang a sign reading “$700 Billion Handout” around the other party’s neck. It seems that the Republican backbenchers didn’t feel like they can go home with this plan behind them. I guess we’ll see if they end up ruing that decision here in a month or so.

A Tale of Two (or Three) Plans

It’s incredible to look at the text of the deal that Dodd and Frank hashed out, that was broadly agreed upon, and that apparently John McCain helped scuttle, () and contrast it with the “plans” that House Republicans presented as an alternative. The Democrat plan is not without flaws, I’m sure, but it has most of the things that progressives have been saying it needs to have: homeowner relief, equity stakes for the government, oversight mechanisms, and a handle on the money spigot. This is about as different from the original Paulson plan as it’s possible to get. It was never going to be everything that progressives wanted, but it seems far better than it could have been.

Contrast that with the Republican plans, of which there seem to be two. The first is little more than a joke: a two year suspension in the capital gains tax – despite the fact that the problem is that the assets these mortgages are backing are worth less now than the mortgages themselves. They don’t need to suspend the capital gains tax, because these assets aren’t going to be making any capital gains. The other is slightly less idiotic, and seems to come down to an elaborate, just as expensive plan that avoids more regulation or Congressional oversight.

These Republicans are fundamentally unserious. They’re trapped by rigid, ossified orthodoxies that prevent them from actually engaging the real world on anything other than the most basic, tactical, political level. They aren’t fit to govern and are simply another example of the idea that when you send people who don’t believe government works to run the government, you just get government that doesn’t work.

Is McCain throwing his weight behind them, or is he trapped in a mavericky labyrinth of his own making? My guess is the later. I can’t imagine anyone who seriously expected to be able to compete in the upcoming election to swing from “the fundamentals of the economy are strong” to “We need more regulation!” to a total abandonment of any sort of regulation. It’s entirely possible that McCain is simply this clueless about what’s going on. After all, it takes the kind of interest in detail, patience and willingness to learn that McCain has never possessed to follow this crisis and come up with a reasonable response.