The Deal Dissolves

by hilzoy

NYT:

"The day began with an agreement that Washington hoped would end the financial crisis that has gripped the nation. It dissolved into a verbal brawl in the Cabinet Room of the White House, urgent warnings from the president and pleas from a Treasury secretary who knelt before the House speaker and appealed for her support.

"If money isn’t loosened up, this sucker could go down," President Bush declared Thursday as he watched the $700 billion bailout package fall apart before his eyes, according to one person in the room.

It was an implosion that spilled out from behind closed doors into public view in a way rarely seen in Washington.

By 10:30 p.m., after another round of talks, Congressional negotiators gave up for the night and said they would try again on Friday. Left uncertain was the fate of the bailout, which the White House says is urgently needed to fix broken financial and credit markets, as well as whether the first presidential debate would go forward as planned Friday night in Mississippi. (...)

"We're in a serious economic crisis," Mr. Bush told reporters as the meeting began shortly before 4 p.m. in the Cabinet Room, adding, "My hope is we can reach an agreement very shortly."

But once the doors closed, the smooth-talking House Republican leader, John A. Boehner of Ohio, surprised many in the room by declaring that his caucus could not support the plan to allow the government to buy distressed mortgage assets from ailing financial companies.

Mr. Boehner pressed an alternative that involved a smaller role for the government, and Mr. McCain, whose support of the deal is critical if fellow Republicans are to sign on, declined to take a stand.

The talks broke up in angry recriminations, according to accounts provided by a participant and others who were briefed on the session, and were followed by dueling press conferences and interviews rife with partisan finger-pointing.

In the Roosevelt Room after the session, the Treasury secretary, Henry M. Paulson Jr. literally bent down on one knee as he pleaded with Nancy Pelosi, the House Speaker, not to "blow it up" by withdrawing her party's support for the package over what Ms. Pelosi derided as a Republican betrayal.

"I didn’t know you were Catholic," Ms. Pelosi said, a wry reference to Mr. Paulson's kneeling, according to someone who observed the exchange. She went on: 'It's not me blowing this up, it's the Republicans."

Mr. Paulson sighed. "I know. I know.""

David Kurtz notes that McCain had spoken to the House Republicans before they staged their revolt, and that a number of them reported that he seemed sympathetic to their ideas. McCain's campaign, however, issued a statement saying that he "did not attack any proposal, or endorse any plan."

That's what I call real leadership: parachute in after other people have been in complicated negotiations for days, trailing the entire national press corps behind you, on the grounds that you are urgently needed, in person -- and then undermine the deal behind the scenes without being willing to publicly take any position at all.

John Cole writes:

"If this is not a big enough crisis that McCain and the GOP can play games with it, it is not a crisis at all."

Why he thinks the Republicans would not be willing to play political games if it were a real crisis, I have no idea. I think a lot of them are more than capable of bringing the country down around them to score political points. Until this year, I did not count John McCain among them: the Republicans without a shred of honor or decency, unwilling to put their own interests aside when their country required it.

I was wrong.

Comments

[EL]

My Guess. The Democrats are the effective owners of the Bush bail out plan in the public's mind because they have majorities in both houses and have been out in public supporting the basic theory of the bail out. The House Reps and McCain (quietly) undermine any plan so it sinks. Then, the credit markets do seize up and the economy tanks. Rep: "This is what happens when the Democrats, the kids, are in charge. They wreck the economy. They could have passed a rescue plan and saved us, but they're too screwed to be able to paas anything to help us. Vote McCain and the Republicans will save you from this economy which the Democrats wrecked." If the economy does not tank, "see we were right all along." Sick, yes. A political winner, good chance. "The Democrats can't win and the Republican can't govern"

[John Thullen]

I'm done.

I hate the Republican Party.

They are the enemy.

[KCinDC]

How could we have been so blind as to not realize that the answer was tax cuts? The answer is always tax cuts!

Hedge fund managers are getting to treat their gigantic incomes as capital gains and thus pay less than half the tax rate working people would pay, as they destroy our economy (thanks, Schumer!). The Republican solution is to say that they should instead be paying no taxes at all, since capital gains shouldn't be taxed. Let's hope the American people have gotten less stupid over the past eight years.

[TBone]

Why, if everyone else is allowed to play politics are the Dems getting silver hair over this? If it is not a serious enough crisis that a republican base that has supported the president nearly 90% of the time is willing to take a stand to increase electoral chances, we all should (and by we, I mean congressional dems).

Do not backdown. Let the country know those who've played major roles in getting us into this mess refuse now to do their parts to get us out.

Let's see what John McCain can do. Let him put a proposal out there that favors business and ignores the average American workers. These guys just don't get it and democrats for whatever reasons aren't willing to call their bluffs.

Chris Dodd should sleep late tomorrow. He has worked to hard on this already.

[TBone]

Vote McCain and the Republicans will save you from this economy which the Democrats wrecked."
-----

How you get here I have no idea?

The country think by a two to one margin that Bush and the republicans have caused this fiasco.

I agree by being adult and investing themselves, dems open the door to more republican chicanery, and I would suggest not working so hard. Let them propose bills - we all the the bills they'd put forward, and let the public decide who favors them.

[ThatLeftTurnInABQ]

You almost left out the best part.

[ThatLeftTurnInABQ]

The Republican solution is to say that they should instead be paying no taxes at all, since capital gains shouldn't be taxed

Color me stupid or something, but can somebody explain to me how it is that there are going to be a whole lot of capital gains to be taxed, in a deflationary spiral where the value of all sorts of assets are plummeting?

[Gary Farber]

As much on point:

[...] At the bipartisan White House meeting that Mr. McCain had called for a day earlier, he sat silently for more than 40 minutes, more observer than leader, and then offered only a vague sense of where he stood, said people in the meeting.

[...]

He said he was hopeful that a deal could be struck quickly and that he could then show up for his scheduled debate on Friday night against his Democratic rival in the presidential race, Senator Barack Obama. But there was no evidence that he was playing a major role in the frantic efforts on Capitol Hill to put a deal back together again.

Hurrah for leadership.

[KCinDC]

You're right, LeftTurn. How dare the Democrats try to address the hair-on-fire emergency quickly, rather than waiting for Mighty McCain to show up! No wonder the Republicans were miffed.

[Tony P.]

John, it's time to acknowledge that it's not the Republican party that's the enemy. When Hilzoy says,

I think a lot of them are more than capable of bringing the country down around them to score political points

we have to ask: score political points with who? Republican politicians will do anything to "win", I agree. But if they were catering to different people, namely people who are not irretrievably stupid or morally deranged, i.e. not Republican voters, their pandering and posturing would be directed toward slightly less evil ends.

I apologize to Hilzoy and anynone else who still wants to find some good in those of our fellow human beings who unashamedly call themselves Republicans, but it ain't the politicians who are the problem.

--TP

[hilzoy]

TLTAABQ: So many good parts, so little time...

John T: I've become very, very, very cynical about the GOP. I mean, I supported the Iraq funding bills because I did not trust Bush not to leave our troops without food or bullets in order to score political points.

But even so, this has truly shocked me.

[Turbulence]

So, was Paulson in on the scam to begin with? Or did they just hang him out to dry? In other words, did he collude with the Republican leadership in inventing a crisis so that the Republicans could hammer the Democrats or does he really believe there is a crisis that needs to be addressed right now?

[Carleton Wu]

Im starting to wonder if the entire "we need 700B" thing was a political stunt, choreographed to let the GOP distance itself from the President & put the Dems on the horns of a dilemma. Either the Dems cave and give out a trillion dollars while the GOP calls them wastrels & ties *them* to The Failure That Is Dubya, or they stand firm & watch Bush use the bully pulpit to drive the economy into the ground & blame them.
The only thing that makes me think that isn't true is that Bush wouldn't connive in making himself look bad- so he would have to have been led about by the nose. But what else is new?

[hilzoy]

Turb: my sense is that he wasn't. At any rate, I don't think ex-Goldman CEOs get down on bended knee before Nancy Pelosi all that easily.

Carleton: I think the crisis is very real. What should be done about it is a different question, but I don't think it's manufactured at all.

Tony P: there are good people who for one reason or another identify as Republicans. I don't think making assumptions about all of them is helpful.

(I mean: there are chunks of the country where almost everyone is Republican. It would be really easy to grow up there and just assume that you were too, and maybe if you listened to Limbaugh a bit too much, you might also believe that the Democrats are perfidious scumbags. It might take a while to change. People are like that.)

[tobie]

I've been feeling like I've been punched in the gut all night. After seven straight days of intensive negotiations, Republican Rep Boehner suddenly brings out a statement of principles for an alternative solution to the economic crisis that includes (a) more deregulation; (b) more tax breaks for the wealthiest of wealthiest and the very Wall Street firmst that got the country into this mess; and (c) removes the paltry 20% of possible profits from the government's buy-outs to be used for low income housing. And the Republicans have the gall to say they're doing this for the sake of Main Street when the only people their sketch of a plan could possibly beneft are those on Wall Street.

What planet is all this happening on? It's a nightmare to think Republicans get elected at all when they are so plainly craven.

[Turbulence]

It might take a while to change. People are like that.

More to the point, it might never change because most people don't pay much attention to politics and what little information they do see gets filtered through the lens of their existing beliefs. Which suggests to me that many many perfectly decent people can continue voting for Republicans no matter what they do.

[ThatLeftTurnInABQ]

Turb: my sense is that he wasn't. At any rate, I don't think ex-Goldman CEOs get down on bended knee before Nancy Pelosi all that easily.

Carleton: I think the crisis is very real. What should be done about it is a different question, but I don't think it's manufactured at all.

What hilzoy said.

First, a ton of some of the best bloggers around (present company excepted) have been jumping up and down for well over a year now trying to get people to see that very dangerous levels of systemic risk are baked into our existing system, based on work by some very smart people like Nouriel Roubini and others. And that same system has recently started acting very erractically - see the story just today at calculatedrisk about the credit spreads for example.

Or see here for someone who has been even more violently opposed to the Paulson bailout than moi, starting to have doubts (that whole blog BTW is excellent if you want to get into the nerdy details).

I'm absolutely convinced that the threat here is very real, and if a systemic deleveraging runs out of control it will absolutely be on the same scale as 1929-1933.

What I am not convinced of, is that we have the right solution at hand, not yet. I'm worried that the proposals being pushed around in Congress right now may be the equivalent of conducting brain surgery on a patient who is on the edge of cardiac arrest.

We may be fixing the wrong problem, and I don't think we are going to get more than once chance at a large scale fix because my sense from reading the news stories is that this is our last shot at large scale capital injections from outside the US. If this doesn't work, I think we will be on our own.

What I most want to see from Congress right now is an expression of support for the Fed and Treasury using their existing resources if something were to happen very suddenly, perhaps backed up by a small injection of new funds on the scale of 50-100 billion (I know that's not small - until you compare it with the ongoing cost of the Iraq war), combined with a lengthy and careful study of the problem with an aim towards getting the right solution in place within the next 3-6 months.

The enemy right now is fear - which can be fought back with a smaller amount of money that the $700b figure which Paulson plucked out of thin air, combined with a project which can publically be seen as headed in the direction of fixing this mess. The impression of movement in the right direction matters as much as the velocity of that movement, IMHO.

But what isn't going to work, and might make things much worse, is this wild flailing around in a panic, like what we saw this week and especially this idiotically chaotic meeting today.

Why Bush, et. al. thought it would be a good thing to have a high stakes meeting in the most public manner possible without first making sure that everybody who mattered was on board and ready to shake hands and smile for the camera, I have no idea. This was a clown show today, and I think McCain bears a very large share of blame for it in the way he forced things out into the public eye rather than working behind the scenes to get deals cut first.

[Warren Terra]

About as soon as it became clear that a bailout bill would emerge, bloggers surmised it would be a trap, and that the R's would let the D's fix some flaws and then, with the D's thereby "owning" the bill, the R's could run against it. McCain confirmed the theory yesterday morning when his staff insisted that the joint statement with Obama not include any substance, even though the five principles Obama's people wanted included were consistent with statements previously released by both campaigns separately. McCain has been entirely disinterested in the actual policy of the situation - on Tuesday he admitted that he hadn't read Paulson's proposal, which at 843 words long could have been read at a rate of under thirty words an hour over the four days then elapsed since its release, even allowing for sleep - and only interested in personal political gain. Reid was right, though as usual ineffective and a poor communicator, when he said the D's shouldn't pass a bill without McCain - but it gives us this absurd situation, when McCain gets to choose whether to make the bailout possible, or to run against the Obama-Bush bailout bill.

[Carleton Wu]

Carleton: I think the crisis is very real. What should be done about it is a different question, but I don't think it's manufactured at all.

I didnt say that very clearly- I think the crisis is real, but Im not sure if the sudden 700B plan was primarily an attempt to solve it, or primarily an attempt to put the Dems into a difficult position and allow the GOP to distance itself from Bush & his creation/handling of the crisis.
Id love to live in a world where that was paranoid.

[ThatLeftTurnInABQ]

I didnt say that very clearly- I think the crisis is real, but Im not sure if the sudden 700B plan was primarily an attempt to solve it, or primarily an attempt to put the Dems into a difficult position and allow the GOP to distance itself from Bush & his creation/handling of the crisis.
Id love to live in a world where that was paranoid.

Ditto that last thought.

I have a tinfoil hat conspiracy theory about the Paulson TARP plan - that it is really about giving Goldman Sachs (and the others, but especially GS) a big glob of cash so they can go around vacuuming up regional banks as part of their "abandon ship" shift in business model from being an investment bank to becoming a commerical bank slash IB hybrid.

If you read calculatedrisk on a regular basis, then you know that the commercial real estate sector (CRE) is also distressed with bad loans but is, as typically happens, running about 9 months of lag time behind the unfolding of events in the housing sector. There are a lot of small and mid sized regional banks which have very heavy exposure to bad CRE loans and are probably going to go belly up in the next 6-12 months.

Whoever is sitting on the sidelines with cash to spare when this happens will be able to swoop down and pick up the remains at firesale prices. If I were a major investment bank looking to get out of that line of work and settle down as a safe, stable and profitable commercial bank, that is where I'd be looking.

But you can't do that without lots of cash in hand. Which is kinda hard to find these days, unless you can find a way to suck it out of the US Treasury...

[Enlightened Layperson]

Here's the thing. After 8 years of Bush, the Republican brand had become toxic and Republican ideas even more toxic. They seemed destined for a fall.

Now, just before the end of the Bush Administration, all the worst aspects of their policy have suddenly come to fruition. And who's preparing to ride this all the way to victory? The Republicans. So we can get four more years of the same. What's this country coming to?

[Tony P.]

Hilzoy, you do me wrong. I do not make assumptions about all self-identified Republicans. Only about "unashamedly" self-identified Republicans.

But I will concede that I should not hold them in the same contempt as Boehner and Company do. I mean, the House Republican "plan" is an insult to your intelligence, but it's not designed to fool you, is it?

--TP

[Jesurgislac]

Yes, the economic system is going into meltdown and by Monday there may not be a civilisation to go back to...

...but I'm still deriving a good deal of innocent entertainment about the position John McCain put himself into when he claimed he was going to "suspend his campaign" and "cancel the debate" tonight. He's now claiming (apparently) he'll show if "we get enough of an agreement" today to justify his flying to Mississippi for a 90 minute debate, which means, if he does show, he's supposed to have got enough of an agreement... and if he doesn't, that's an automatic fail.)

This is not quite worth staying up till 1am for. Though I might change my mind about that if it becomes clear McCain isn't going to show.

[CharleyCarp]

OK, so Obama, Frank, Dodd, and Pelosi need to go sit down with Paulson: we'll push through the deal we all reached on Thursday morning, in exchange for the endorsement, by Bush, Gates, and Paulson, of Obama for President. Is the financial system hanging by a thread or not?

[rea]

It's rather mind boggling to have it proved that when it comes to putting the good of the country over personal political advantage, John McCain is less responsbile than George W. Bush. I would not have thought it possible, but it's true.

McCain shows no interest in the substance of any plan--he's simply insistent that whatever happens, he's on the opposite side of the issue from Obama, and gets to blame Obama for the results.

[liberal japonicus]

...John McCain is less responsible than George W. Bush. I would not have thought it possible, but it's true.

I'm sure if the positions were reversed, W would be doing the same thing that McCain is doing. Don't let the fact that one is on the inside and the other is outside trying to get in fool you as to relative merit.

[KCinDC]

And don't assume that the Bushies are actually in opposition to McCain just because of surface appearances.

[Anarch]

Jes -- you're overlooking the simplicity of McCain's judo. All he has to do at the debate is claim, with a figleaf of credibility, that he helped broker a deal that will fix this problem. It can all go to hell the following day, but -- this is the genius of the American ADD -- it won't matter. The point will have been scored, the narrative shifted, and that's your ballgame.

[Jesurgislac]

Anarch: All he has to do at the debate is claim, with a figleaf of credibility, that he helped broker a deal that will fix this problem.

Oops. I forgot how simple life is when you are confident you can just lie and the media will ignore the fact that, er, you lied.

[Anarch]

Bingo.

Plus, at this point I'm not even convinced it'll matter if the media calls him on his lies. Right-wing talk radio was, until last week, thundering that there was no financial problem at all, it was just the Democrats' political fear-mongering. I don't doubt that their listeners will cheerfully whitewash McCain's culpability rather than admit/acknowledge that we're sliding down the abyss and that the GOP might somehow be at fault.

[KCinDC]

Anarch, McCain can't win with just the Limbaughites. What's important, as usual, is how this is perceived by swing voters. I have no idea, as usual, what (or whether) they're thinking.

[Anarch]

But that's sort of the point: if you're a low-enough-information voter, and you hear that it's all Democratic propaganda -- or now, all the Democrats' fault -- and John McCain is looking all photo-oppy and President Man From President Land, well, the election suddenly becomes a lot harder than it bloody well ought.

[Carleton Wu]

in exchange for the endorsement, by Bush, Gates, and Paulson, of Obama for President.

I dont think we *want* Bush's endorsement. Paulson, sure, why not. But the biggest problem with the current events is that the GOP appears to be *intentionally* creating a wedge issue between Bush and the GOP in Congress, so that the congresscritters can credibly distance themselves from their mistakes & blame them all on Bush.
Getting the endorsement of Mr.23% would just be icing on the cake for that plan, and would permanently end any attempt to pin the events of the last 8 years on the party of John McCain.

[KCinDC]

Anarch, the voters who count are going to be seeing all that (or not) in the mainstream media, which is why it's not the right-wing talk shows that matter. The people listening to Limbaugh and company may be low-information, but they're not swing voters.

[Ara]

Hilzoy, you said a few days ago that you were sick of Dems having to always be the adults. You were talking about budgetary chicken I think. This seems to be parallel. The Republicans can oppose this and campaign against an unpopular bill and basically free ride politically, even if Bush + the Dems hammer it through, save the country, and get no credit. So I guess I'm wondering if you still think we should play chicken? So far Pelosi is doing it, refusing to bring a bill to the table. But the risk here is a lot more grave than budgetary chicken.

[Anarch]

KCinDC: I'm not talking about the Limbaughites directly -- though I realize it might've sounded that way -- but those voters who, if McCain stands up and looks all presidenty and says how he saved the economy during the debates, won't realize he's full of shit.

[SplendidMarbles]

Tonight, McCain will be on the national stage all by his himself. And the American public will see that this man truly has no clue when it comes to solving the largest crisis in American finance since the Great Depression.

He will not be able to nod and wink. He will have to explain his position on this bailout and how he plans to solve the negative effects it will have on the real economy.

[hilzoy]

Ara: I think that passing some bailout -- not the Paulson version, but the Dodd/Frank version is OK -- is probably necessary to avoid really bad economic problems. So, yeah, I want us to be the adults here.

Giving up on health care for the sake of the deficit is a different thing: putting one genuinely good thing on hold for the sake of a benefit that will just be squandered eight years later. If the Republicans were adults too, we might get real benefits out of trying to get out of debt. As it is, we're giving up real benefits for real people who badly need them, for nothing.

Or, shorter me: when getting something that really matters can be achieved w/o the Republicans, I want us to be grownups. Otherwise, not so much.