Settle Down, Kos
(updated)
As Congressional leaders are announcing that an agreement in principle has been reached on bailout legislation, the proprietor of the largest liberal blog is all but threatening to support primary campaigns against Democrats who vote in favor of it. I think Kos is a smart guy and I agree with him much of the time, but this threat is entirely misdirected.
I'm as angry as the next person at the current situation, but my anger is directed at those who got us into this mess, not those who are endeavoring--in good faith--to rescue us from it.
There are reasons to be skeptical that this bailout plan is good policy. Some argue that it is not necessary. Some argue that it won't work. Others honestly believe it is our only hope of thwarting a major economic catastrophe. And the reality is that no one, even very smart economists can say with any confidence what the "right" course of action is here. We're in a real bind, and there just isn't any moral or policy clarity.
In light of that, I think it's more than a little unhelpful to threaten political retribution against folks who are just trying to do the right thing, as they see it.
This is not the Iraq War debate or the FISA debate where the Democrats in Congress feel political pressure to vote against their better judgment. President Bush has no leverage, and the Democrats know that this bailout is deeply unpopular. Their phones are ringing off the hooks with people complaining about it. Every single Democrat in Congress would prefer to vote against this bailout. The only thing that is keeping them from doing so is the honest belief that if nothing is done, the consequences to our economy--including to Main Street--will be dire.
It could be that the Democrats are wrong, that the consequences of passing this bailout will be even more dire. It could be that we have more time to think about this than Congress seems to think we do. But whatever happens this week, however members of Congress end up voting, they won't be doing so because they fear standing up to the Bush administration. They'd vastly prefer to do that at this point. They're going to vote based on their assessment of the overall economic situation. Policy is going to trump politics, at least on the Democratic side.
It would be a shame to punish people for acting in good faith.
UPDATE: In the comments, Glenn Greenwald makes a number of fair points:
In this case, though, I'm fairly confident that Democrats are supporting the Dodd/Frank bailout proposal because they genuinely believe that if nothing is passed, the harm to regular Americans will be significant. If they didn't believe that, it would make much more political sense to oppose the bailout. It's deeply unpopular, and the economy is not like national security. The Democrats have no fear of standing up to the president on economic issues, especially in this climate. The president has no leverage at all right now, which is why he quickly capitulated to virtually every Democratic demand.
I guess what I'm saying is this: if we're going to target "bad" Democrats for primary challenges, I don't think the way they vote on this bill is a very good indicator of whether they are worth targeting. There's no moral clarity here. It's genuinely difficult to know what the right thing to do is. Let's look at other, more clear cut issues, when determining whether to sink valuable resources into unseating a Democratic incumbent.
As Congressional leaders are announcing that an agreement in principle has been reached on bailout legislation, the proprietor of the largest liberal blog is all but threatening to support primary campaigns against Democrats who vote in favor of it. I think Kos is a smart guy and I agree with him much of the time, but this threat is entirely misdirected.
I'm as angry as the next person at the current situation, but my anger is directed at those who got us into this mess, not those who are endeavoring--in good faith--to rescue us from it.
There are reasons to be skeptical that this bailout plan is good policy. Some argue that it is not necessary. Some argue that it won't work. Others honestly believe it is our only hope of thwarting a major economic catastrophe. And the reality is that no one, even very smart economists can say with any confidence what the "right" course of action is here. We're in a real bind, and there just isn't any moral or policy clarity.
In light of that, I think it's more than a little unhelpful to threaten political retribution against folks who are just trying to do the right thing, as they see it.
This is not the Iraq War debate or the FISA debate where the Democrats in Congress feel political pressure to vote against their better judgment. President Bush has no leverage, and the Democrats know that this bailout is deeply unpopular. Their phones are ringing off the hooks with people complaining about it. Every single Democrat in Congress would prefer to vote against this bailout. The only thing that is keeping them from doing so is the honest belief that if nothing is done, the consequences to our economy--including to Main Street--will be dire.
It could be that the Democrats are wrong, that the consequences of passing this bailout will be even more dire. It could be that we have more time to think about this than Congress seems to think we do. But whatever happens this week, however members of Congress end up voting, they won't be doing so because they fear standing up to the Bush administration. They'd vastly prefer to do that at this point. They're going to vote based on their assessment of the overall economic situation. Policy is going to trump politics, at least on the Democratic side.
It would be a shame to punish people for acting in good faith.
UPDATE: In the comments, Glenn Greenwald makes a number of fair points:
Since when is mounting a primary challenge against an office-holder a "punishment"? Incumbents aren't entitled to hold office. If people support other candidates against them with views closer to their own, that's called "democracy" -- not punishment.I agree with most of this, so let me be a little clearer about what's bothering me here. First, I completely agree that incumbents are not entitled to hold office and that anyone should feel free to mount a primary challenge. I guess what I'm really disagreeing with is the notion that it furthers progressive goals to target Democrats who vote in favor of this bill. I've always understood the netroots goal of sponsoring "better Democrats" to be geared toward electing progressive politicians who have the courage to stand up for progressive ideas. And I support that. I'm sick of Democrats who cave on issues like war and civil liberties because they are worried about being portrayed as "weak." I'm sick of people who lack the courage to fight for what they actually believe.
I'll leave to the side your claim that Democrats are acting with good motives -- not sure how you can divine that (i.e., what makes you so sure they're not acting out of the political fear that voting for the bailout -- along with the GOP -- is the way to stay safest politically?), but OK. Do you really think that the only reasonable grounds for challenging an incumbent is if they vote for something in bad faith? Isn't their voting for a terrible bill -- even if they think it's a good bill -- a fair grounds for wanting to remove them from office? I'm sure lots of Democrats thought they were voting for the Iraq War for good reasons -- in "good faith". You actually think that their good motives in supporting a terrible law should immunize them from defeat?
In this case, though, I'm fairly confident that Democrats are supporting the Dodd/Frank bailout proposal because they genuinely believe that if nothing is passed, the harm to regular Americans will be significant. If they didn't believe that, it would make much more political sense to oppose the bailout. It's deeply unpopular, and the economy is not like national security. The Democrats have no fear of standing up to the president on economic issues, especially in this climate. The president has no leverage at all right now, which is why he quickly capitulated to virtually every Democratic demand.
I guess what I'm saying is this: if we're going to target "bad" Democrats for primary challenges, I don't think the way they vote on this bill is a very good indicator of whether they are worth targeting. There's no moral clarity here. It's genuinely difficult to know what the right thing to do is. Let's look at other, more clear cut issues, when determining whether to sink valuable resources into unseating a Democratic incumbent.
posted by A.L. at 12:24 PM
17 Comments:
I'm with Kos on this one. And Galbraith. And Jeffrey Ely.
Hey A.L. - I don't get your reasoning at all, particularly this:
____________
"It would be a shame to punish people for acting in good faith."
______________
Since when is mounting a primary challenge against an office-holder a "punishment"? Incumbents aren't entitled to hold office. If people support other candidates against them with views closer to their own, that's called "democracy" -- not punishment.
I'll leave to the side your claim that Democrats are acting with good motives -- not sure how you can divine that (i.e., what makes you so sure they're not acting out of the political fear that voting for the bailout -- along with the GOP -- is the way to stay safest politically?), but OK.
Do you really think that the only reasonable grounds for challenging an incumbent is if they vote for something in bad faith? Isn't their voting for a terrible bill -- even if they think it's a good bill -- a fair grounds for wanting to remove them from office?
I'm sure lots of Democrats thought they were voting for the Iraq War for good reasons -- in "good faith". You actually think that their good motives in supporting a terrible law should immunize them from defeat?
I'm with A.L.
I think the Dems should pass something, quickly and strongly. But then I want to see the details on what they 'caved' on. If they basically lay down and let BushCo roll over them...
The detail I really want to see changed? The one that gives Paulson zero oversight from Congress or even judicial review. These guys have used the Treasury like a feeding trough, and while I expect a certain amount of grubbing, I want to see a basically reasonable bill come out of this.
I strongly disagree with your argument. There is this pernicious believe that "something has to be done." Strangely enough at times the best thing is to do nothing. Or, put differently, it is important to resist any urge to act when the planned action is fatally flawed.
To illustrate: your plumbing is leaking and somebody suggests thoracic surgery. Anybody stressing that operating is better than doing nothing clearly fails to recognise that heart surgery is not going to solve your plumbing problems. Operating on the notion that "something has to be done" would be historically silly.
To cite Samuel Shem "in case of emergency check pulse, your own."
This entire fiasco is a pig in a poke. No one knows where bottom is. No one is disclosing anything that is not absolutely necessary.
When you buy a car do you think the odometer has anything to do with the value? When you don't know how many miles how can you put a value on it?
You can't. That is why this is a bad deal. No one knows where the bottom really is...yet.
If there is no bailout and everyone goes bankrupt, what happens to the mortgages? (Yes, I know that more than mortgages are involved)
Will there be no-one left holding them? and if so, do the homeowners then not have anyone they have to pay back?
Talk about a stimulus package! That would do the job for the US.
My problem with this whole affair is the complete lack of any meaningful explanation of why Wall Street (or the banks) are in trouble, and how the bailout money would be spent.
For instance. An investment bank bundles and slices and dices mortgages and packages them as an MBS. But then it sells it to someone else. So how is the investment bank impacted if the mortgages go bust?
As far as bailout money is concerned, will it purchase MBS, and from who? Is the investment bank effectively an intermediate who will bail out the purchaser of the MBS?
That goes double for Credit Default Swaps. As I understand it, those are insurances against problems with the MBS. So they default. How does that affect the credit market?
It's smelling more like the bailout isn't to actually rectify balance sheets, but more as a psychological salve for the credit market.
I do not want federal dollars spent for psychological reasons.
If anybody can provide a link to a solid report on the situation, I'm eager to read it. But it had better not have bromides about how "Wall Street can't function".
Over at Calculated Risk, I see that the TED spread (and the A2/P2 spread) is off the charts, and that the credit market is therefore frozen. Let me be clear:
That spread is not in any way the result calculations of numbers on balance sheets. The "spread number" is simply market mood.
AL, I can't understand why you are so absolutely convinced that this bailout is neccessary as conceived despite the fact that the mechanics of how this will actually work are opaque and Paulson admitted that the number $700 billion was "not based on any particular data point . . . we just wanted to come up with a really large number."
Don't get me wrong. I think that our economy has been royally trashed and that something needs to be done to fix it. But that does not mean throwing $700B at the first charlatan to come up with a "plan."
As I've advocated before in the comments, I think that Democrats should be fighting for a much more progessive plan than simply feeding another $700B into the top of the food chain, particularly in light of the incredible moral hazard involved.
At the very least, I think any plan needs to explicitly carry the terms of its funding. This should be accomplished by bumping the capital gains tax rate, immediately reversing the Bush tax cuts and raising the tax rate on the top 5% of earners. These are the people whose fire is being put out so it doesn't spread to the whole neighborhood. These are also the people who will gain the most in nominal terms from the bailout.
People are paying attention to this bill. It would be very difficult for Republicans to pull their usual song-and-dance about how such tax tie-ins are increased taxes for "small business owners" or "farmers" or whatever. If the GOP wants to balk at this, Democrats should hang the "top 1%" number around their neck and point out that the GOP is putting the interests of the top 1% ahead of the country, "which is exactly what got us into this mess in the first place." McCain can't complain withuot tanking his candidacy. Neither could other Republicans facing election. Throw in expanded unemployment coverage and COBRA protections (the latest unemployment numbers are grim), SCHIP, and other progressive policies that are widely popular and Democrats have historically had difficulty enacting.
The smartest thing the Democrats can do is to come up with a progressive version of the bailout bill that Bush will oppose, but which is political poison for McCain to oppose because that will (for once) split the Congressional Republicans. No way the public takes the GOP side in any standoff and they will ultimately be forced to capitulate.
I simply can't understand why everytime the GOP is holding a decent hand (i.e. better poll numbers on national security after 9/11), they are able to ram it down our throats ("the terrorists will kill us all if the Democrats don't do exactly what we say!"). And yet this one time, when the Democrats essentially flopped a full house (Democrats are trusted more on economic issues and the public blames the GOP for this mess), we think the "smart" play is to simply check this one down to the river.
All in, you clowns! Put the Republicans all in on this!
Quiddity said..."As far as bailout money is concerned, will it purchase MBS, and from who?"
That's the crux of my question above I guess. Thanks.
That changes the question to, If they are going to buy MBS, at what price? could they get the same effect by bailing out individuals, essentially buying the homes at discounted rate and then charging the homeowner what amounts to a new, lower mortgage rate?
I know that's a stupid question, I just want someone to explain why it's stupid. It seems to follow the conservative logic about what builds a stronger economy. Creative solutions could be drafted involving the newly solvent corporations for administering the loans.
"Punishment" is the effect. "Democracy" is the instrument. Trying to throw out (via democracy) someone (a Dem) nominally "on your side" because they've done something you disagree with can legitimately be described as "punishing" them, in a defensible sense of the word. I find this all highly semantic and unobjectionable.
I am all for getting more progressive Dems into office, and contributed to the (early August?) money-bomb for that Strange Bedfellows organization Glenn pimped. The Dem capitulation on the FISA amendments flew all over me. The point is that this bail-out bill is a different animal entirely from the FISA amendments.
We haven't even seen the bill yet. For Kos to be calling to throw out Dems who vote for it (before we even know what it says!) is jumping the gun. It is also jumping the gun to call for their heads before we know if the bill (once passed) works or fails.
I agree with progressive libertarian that we need as progressive a bill as possible (and with everything else e says re political positioning). I hope Dodd and the rest come through on this.
Bailout. Hmm-m-m-m. The more I think about a bailout, the more that I ponder the situation, it begs the question,
“What is the big hurry?”
There is an old saying that goes something like this, “Fool me once, shame on you. Fool me twice, shame on me.” How does that apply to today. Well, since President Bush took office he has said one thing in public and, we later find out, he does the opposite behind closed doors.
And don’t rattle the bones of that old bogeyman, The Great Depression. The singular reason that it was so bad was that the president took no action for over three years. Three long fucking years while the situation continued to get worse. The credit markets are not going to collapse, the unemployment is not going to go to 12 percent if we don’t do something this week. We can even, safely wait, Oh no, forbid the thought, until after the election in November. Then the President-elect can help shape a policy that he will have to live with.
The market is partly built on expectations. If the market expects, if the market believes that a plan will be in place by, say, 1 February 2009, the market will function, if not perfectly, then at least partially. And based on the expectation of a cure, and a relatively palatable one at that, we will all survive the winter.
You are a sane voice in the wilderness AL, keep it up.
People either have very short memories or they were not paying attention. Just last week, it was clear that the economy was similar to a plane nosediving--once it gets far enough over there is no pulling it back up. But suddenly a mass delusion has taken place that it was nothing--screw what the Krugman's of the world say.
I would be willing to bet a lot that if we do not pass a bailout for Wall Street we will regret it once we see the consequences. If I were a Senator, I don't think that I could take that risk in good conscience.
I do sympathize with people wondering why we are bailing out the financial industry instead of the real economy. But the problem is that we have no real economy in the U.S.; unfortunately we have shipped that to third world countries and made ourselves the world's bankers instead. Our economy IS the financial industry.
So we have looked into the mirror and seen a monster, but do not want to believe that the monster is us. We want to believe we can kill the monster without killing ourselves. But the fact remains: the monster is us.
The good news in all of this is that Democrats are holding a winning hand. The key is making sure McCain votes for the bill. If he does not the bailout must die. But assuming McCain is on board, the Republican party will split at the seams. Many democrats will be unhappy, but nothing compared to the rage on the GOP side. A more presidential-looking version of Ron Paul could make a killing right now.
But when you have two major parties both supporting big government intervention, I am pretty sure most people will choose the Democrats for not fucking up the country over the last eight years.
Quiditty said:
"I do not want federal dollars spent for psychological reasons."
Sorry Quiditty, that is all the economy is based on: mass psychology.
Especially in times of crisis, confidence in markets is the only thing that matters. Why? Because everybody is deciding whether they will keep their money in the markets or in a coffee can buried in their backyards based on what they think everyone else will do. Fear is a contagion; its spread can be hard to stop once it starts. So yes, I do think that psychological reasons are a legitimate use of federal funds.
My main view is that the U.S. is fucked no matter what we do, because the financial industry has become our economy. But if I were a senator, it would be criminal not to try.
Anonymous said:
"could they get the same effect by bailing out individuals, essentially buying the homes at discounted rate and then charging the homeowner what amounts to a new, lower mortgage rate?"
Yes, in theory they could. What makes this near impossible is the administrative task. Do you know how long it would take to build up a program that could deal with every single foreclosure in the U.S. and then renegotiate each and every mortgage? I don't know either. But I'd bet it would take years at least to do it in a fair and equitable way.
By all means challenge every incumbent that you want to target. Let's run a super liberal against every blue dog democrat that exists in congress. Lets see who wins; and when the liberal candidate gets crushed, what will you do to retaliate against the voters will?
the caretaker: I was writing in broad strokes. I understand that market psychology plays a role, but from what I've been reading - especially absent any details of the mechanisms involved (causing the problem; solving the problem) - it was looking like the bailout was overwhelmingly psychological. Thus my comment.
I didn't mind the recent guarantee of money market funds. That helps stop a panic. But this vague "lets give money to Wall Street" looked suspicious (except for the obvious fact that some players were going to get rich, or not face losses).
I mean, sometimes there are some basic facts that should be enough for people, and further "reassurance" actually makes the situatio worse.
I know somebody who went to her FDIC insured bank to withdraw all but $5 in her account. She took out less than $200. That's an example of bad psychology. What can I tell her? The fact is that the money was safe in the bank.
I'm all for establishing solid facts with the mortgage market and its derivatives. But no more. And I suspect that much of the bailout is going "too far" in terms of helping market psychology.
I'm really feeling bad here at 11pm local time... knowing it's all gone to hell in DC with the Repubs deciding to use the bailout as a political football. I'm thinking a 1000 pt drop in the Dow is coming friday, and I've never hoped to be wrong about something so much. But I don't think anyone can tell me why the Dow shouldn't shed 1000 if there isn't some miracle announcement early tomorrow morning.
My only hope is that friday will convince the Repubs to stop blocking this.
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