Sep
26
The failure of the bailout
Filed Under Sunrise on KGMB9
A lot of interesting detail is coming out about what happened Thursday to kill the Wall Street bailout package. Part of what makes it interesting is how the divide opened up, not between Republicans and Democrats, but between two factions of the Republicans.
Treasury Secretary Henry Paulsen, who comes from Wall Street and is regarded by all sides as being a financial executive who is not especially political, pushed for the plan. He evangelized the belief that Wall Street needed to be stabilized before its spasms messed up the entire economy.
Federal Reserve Chairman Ben Bernanke backed him up and said a global recession could result from not bailing out the financial services industry, by purchasing securities that no one else wants to buy at the moment.
Most of the key players bought into this. President Bush, who has an MBA, signed off on the idea. Key Democrats, including Senate Banking Chairman Chris Dodd and the House Banking Committee’s Barney Frank, agreed to push a bipartisan deal after the president accepted some features they wanted, including oversight for all the money Treasury would be spending.
On the House side, Republican leaders seemed to buy into the plan, but, we now know, some of them were getting a lot of heat from rural district representatives whose constituents wanted Wall Streeters to feel some pain.
Congressional aides worked through the night from Wednesday into Thursday morning, produced a package, and Congressional leaders signed off on it, heading for a meeting at the White House that was supposed to culminate in President Bush leading everybody out to a photo opp.
John McCain made headlines with the announcement that the financial crisis was so important he would suspend his campaign and fly to Washington to take part in solving it. Barack Obama kept campaigning, and objected when McCain wanted to postpone a Friday debate.
(I thought the announcement would have made more sense — assuming it was heartfelt and McCain really wanted to play a role — had it been made a couple days earlier before Congressional negotiators hammered out a plan.)
President Bush welcomed McCain into the final meeting and even extended an invitation to Obama, who decided he would come, too, so he and McCain could stand together and support the plan in the bipartisan spirit President Bush sought.
Treasury Secretary Paulsen was blindsided by what happened. We infer that from the fact that he spent time trying to make sure Democrats would kill the deal. In one of the few lighthearted moments in the talks, Paulsen reportedly went down on bended knee to plead with House Speaker Nancy Pelosi not to say anything in the White House meeting jeopardize the deal.
Instead, rebel Republicans, defying their president, said they had “an alternate plan” in which Wall Street firms would be required to pay for their own bailout by purchasing insurance. Voices were raised, one senator stormed out early (he recovered his composure by the time he faced the stakeout of reporters on the grass) and suddenly the deal was off.
Some back-bench Democrats accused McCain of messing up the deal with his decision to insert himself into the process. Indirectly they might be right, but it looks to me like he didn’t deliberately sabotage the agreement. The rebels briefed him on what they were up to, according to some reports, and solicited his support. But participants in the White House meeting said McCain spoke neither for nor against the president’s plan.
Friday morning it was announced that the rebel view would be represented by House Minority Whip Roy Blunt, father of the governor of Missouri, husband of a tobacco lobbyist, and congressman to a rural Ozarks district. Barney Frank, who complained earlier in the morning that he no longer knew who he was negotiating with, now knew.
But it was unclear how such delicate talks would proceed with negotiators named Frank and Blunt.
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8 Responses to “The failure of the bailout”
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Can you please explain what exactly these securities that no one else wants are?
What are they? - Why doesn’t anyone want them?
Why would YOU & ME want to buy them?
BTW - I don’t believe people are interested in the “Protection Racket”. (Buy our bad investments or else we will crush the economy)
There must be another reason? Isn’t there?
Washington Mutual, the largest U.S. savings and loan bank, was taken over by authorities and with JPMorgan Chase buying up MOST of its assets. (Most)
HMMMmmmm… I wonder which assets the US tax payer got stuck with…
Do you think it might have been the $135 Billion in bad Credit Default Swaps they issued?
I don’t remember any bankruptcy proceedings regarding Washington Mutual… How does that work?
Was the preferred stock simply seized and declared “worthless” by the government?
Did the government simply destroy the entire capitol structure without resource or judicial review?
I always thought that if you went bankrupt, you went in front of a bankruptcy judge. What changed?
Howard, can you tell us how our Hawaii Representatives voted? I have searched your KGMB9 website unsuccessfully. Do you anticipate that we will hear more from them?
Mahalo nui for your follow-up blog post answering my question Howard. So I understand that Abercrombie and Hirono have now voted yes to the revised bail-out plan which has passed in both the House and Senate: Will KGMB9 be doing a story soon interviewing them (and both our senators) on their reasons, and how they feel they have represented our best interests?
While I applaud you for the “explainer” role you have so willingly assumed with KGMB9, it is becoming increasingly apparent to me that our expectations of our elected officials are much too low: They do not talk to us nearly enough as they should be — and in turn, we assume too much about their representation of us.
In this case in particular, I am curious about why all four of our Democrats (House and Senate) were not initially in agreement with each other, and then what triggered the change in heart (mind?) for Abercrombie and Hirono.
Howard, please do a story about the deceptio and loopholes, in the bailout bill. I just read, MSN MONEY, by Jon Markman article titled, “It’s a Great time to be Afraid”. This article discloses the truth behind the Bailout Bills Deceptions, and why Taxpayers will not get there Money Back from Banks. Please, HELP let the public KNOW THE TRUTH
Look at Section 113, subsection 3A in the Bailout bill. The sneaky deception here, is that, the banks will make their warrants and debt instrument worth less than $100 million, thus 3A Subsection, won’t trigger the payback provision. The banks will simply issue their debt in Trances of $99 million or less, and avoid allowing the Gov’t , “Taxpayer” to get a piece of the banks profits.
It’s time for a PETITION to STOP THE ISSUANCE OF THE PAYOUT OF THE BAILOUT BILL, IT will not make a difference in the economy. We will suffer for many, many years to come, because our Elected Officials are CROOKS and LIARS, and Decieve the taxpayers, who placed them in Office.
Gloria. I do hope that you realize that the crooks and liars you are referring to are Rep. Barney Frank D-Mass and Sen. Chris Dodd, D-Conn.
These two leaders? were to provide oversight in the banking industry. Both have failed miserably, a clear reflection of the democrat controlled legislature.
I am no friend of George Bush, but I must set the record straight. These two gentlemen must be held accountable by the American people.
I also feel that we should follow the British people and demand resignation of all the CEO’s of the failed banks and AIG, and under no circumstances should they receive any bonuses.