Bailout Update

Apparently, as are much things in life, the initial facts about the ‘new’ bailout package were not nescessarily reported accurately by news outlets.  I was just reading Daily Kos and they are doing an ‘oops’ too.

The bailout package is not the blatant pork barrel package that it sounded like this morning.   What the Senate did was take several issues on the table already: AMT tax, disater relief, energy credits, and a few other items and added it to the package in the hopes of getting those items passed with more votes than typically would have occured (e.g. provide more political coverage).  So, my initial rant on this new package was a little off base – particularly to my accusation against the Republicans.

It’s funny, the Senate is usually more level headed, less partisan, and more conservative (not politically, but acting) then the House. It did seem odd they were adding all these ‘sweenters’ from the get-go without further negotiations with the House.  

Now, I still have a problem with the package – particularly the AMT tax.  I fully agree that the tax does need to be changed as it puts an added burden on many middle class families.  However, my concern is the same as it was this morning and the same the Congress and various Presidential administrations have had for many years – that there is no offset for reducing the AMT.  Tax receipts are being reduced significantly without cuts in spending or tax increases in other places.  Again, I think it is a ‘what the hell’ philosophy – we are in bad debt already, we are making it worse, why not add more too it and do the dirty deed we’ve been avoiding for years.   I don’t think it’s the proper way of addressing the need to change the AMT.

As for the other ‘sweetners’ they do not seem as significant as the the press reported earlier in the day and are not significant drivers in boosting the cost of the bill.  Most of them are can’t lose propositions during Congressional campaigning and eases some of the ire of the voter.  In a lot of ways, it backs many into a corner who won’t vote for the package – what Congressman wants to come out against disater relief tax credits or energy credits?

I am currently watching the Senate vote and the yea’s are very bi-partisan.  It’s interesting, just like in the House, some of those in a dog fight election voted nea (Elizabeth Dole, for example).  It just passed 74-25 with only Kennedy not voting.

Obama Showing True Leadership Today

Mr. Obama was on the Floor of the Senate today speaking for the bailout package.  As the leader of his party, he felt it important to go on record on the Floor to address the vote tonight.

Mr. McCain, who dropped everything to screw up the original bill and did not stay until a deal was worked as he promised and couldn’t deliver votes from his party – for which he now leads, did not address the chamber.

Score another point for Obama being in DC for 1/2 the day and actually on the ground trying to ensure the votes were there to pass.  At the same time, McCain wasn’t in DC….

Who is showing leadership? Hmm….

The Bailout Package gets a lot WORSE!

As much as I don’t like the idea of passing the $700B bailout package, I thought it was a necessary evil the had to get done.  I think Republicans were to blame for it’s failure and the stock market correction on Monday.

Well, with the participation of the Democrats, they have now taken a gut-wrenching bill and made it nearly unacceptable.  In doing so, they may still not get it past the House.  Representatives McConnell and Reid – leaders for both parties came up with a set of additional items to help flow passage -but they aren’t without some potential roadblocks.  The details are still sketchy, but based on what CNN is reporting:

1) Business Tax Breaks

2) Elimination of AMT tax

3) Increase in FDIC insurance by 150K per account

4) Clean Energy credits

5) Oddly – a mental health provision to cover at the same rate health insurance is covered.

The Mental health coverage, in this bill, is bizarre but might be aimed at Democrats to support the bill.  Apparently, the clean energy tax credits were going to get passed in the future – so that isn’t a big deal.  The FDIC insurance from 100K to 250K is ok.  Understand, this really affects mostly the wealthy and I doubt most of them keep 250K in bank accounts rather than investments.

The two I have a huge problem supporting – business tax breaks and elimination/reduction of the Alternative Minimum Tax (AMT).  The first problem is neither one of them is paid for.  That is, it will be an added burden to this bill.  What was a $700B package is now (per the estimates I read) a $800B+ package.  The AMT tax is something that must be addressed and fixed.  It’s been on the agenda of Congress for many years.

For those not familiar, it was a tax invented in the 60’s to be applied to high-income earners to ensure they don’t over use tax shelters.  Unfortunately, Congress never adjusted for inflation and, over the years, it has hit the middle-income earners.  The problem with changing the tax structure is that the Government has relied on those tax receipts from the AMT to fund our budget.  In the past, Congress hasn’t been able to change the tax because it would create a huge addition to the deficit as a result of the significant amount of income would be lost.  In this plan, it’s almost like they are saying, ‘what the hell, we are screwing the debt/deficit anyway – might as well take care of it now.”  Let’s be clear – This will not be something that affects most ‘middle-class’ Americans.  Mostly, it will affect the top 5-10% of wage earners (in most circumstances).  So this isn’t relief to the family of four in Ohio making $60K per year and struggling to get by.

Second, the business tax breaks are something that the GOP would love to get passed. It helps their constituency.  Their blackmail on the vote is going to, again, help the upper-middle class and wealthy – not that Ohio family.  This too will add to our debt/deficit because no spending offsets are part of the bill.

I’ve been railing for this bill to pass for a week now.  However, this is not one that I am sure I can support anymore.  Not even because of my belief that it isn’t fair and opportunistic by the GOP – I do think that. But, I can’t support it because it adds additional debt without spending cuts for things that are not priorities right now to free up credit and get the economy moving.  For anyone who claims that these tax breaks will help the economy – realize this is the same philosophy of the Republicans over the last three Republican administrations – supply side economics (trickle down).  It won’t help, just make the rich – richer.

Unfortunately, while this may get more Republicans on board, it will probably cost the Democrats votes.  Those who believe, as I do, that whatever we do should be done only to support fixing the crisis and not making our long term debt worse than it needs to be.  In addition, those Democrats who don’t vote for the bill may have a tougher election fight – as the Republicans can claim those Democrats don’t want to help the middle-class.

Finally, since the bailout failed the American public is very quickly changing their opinion on the bailout package (as I predicted in previous posts).  According to news sources  – the calls are now running 50/50 on the bailout package.  Even the House seems to be more responsive to the initial package.

It’s unfortunate that this package is turning into the type of bill that everything else in Congress ends up being – weighed down with a lot of ‘junk’ that gets away from the core issue and core problem.  This isn’t pork barrel the traditional sense – but make no mistake – it is a type of pork barrel politics.

Article: The Telegraph – Financial Crisis

An article from the Telegraph in London provides some good comentary on the significance of not passing this bail-out package:

Financial crisis: Western world will become significantly less wealthy

In one fell swoop, the House of Representatives has applied a sledgehammer to the American economy. The staggering plunge in the value of publicly quoted stocks in the US last night – a $1.2 trillion fall – shows more clearly than anything else just how much it had been holding out for a financial bail-out.

The article is less about politics and more about the reality of the situation.  This article goes beyond politics, and thus beyond what my blog intends to cover.  However, per much feedback I’ve been getting about my recent support of the bail-out – I’d figure I provide another article that helps illustrate why I think this is a nescessary evil.

Will Wall Street now Bail on The GOP?

The market closed down 777 points today – or 8%.  The figures I’ve been hearing state that this is about 1.2 trillion dollars worth of wealth that just vanished.  That 1.2 trillion dollars (nearly twice the bailout) is held by a lot of different interests, but particularly the Republican base – free market capitalists and the upper 1% income earners.  In addition, it’s held by the much heralded ‘Main Street’ and middle-class America.

So how does this affect the electorate?  Well, let’s get back to the Republican base vote again – the rich and free market folks.  The roller-coaster ride by the market over the last week has been tied directly to the potential passage of a bail-out bill.  The market reacted negatively last week to the failures of a deal getting done.  Monday’s big loss was a result of the GOP again not getting on board and nixing the deal.  The Republicans can claim all they want that the speech by Pelosi caused them to vote against the bill.  But the reasons don’t matter – whether ideology, feelings, or good intentions.  The World and Wall Street wanted to see this bill done.  The Democrats delivered 60% yea votes to the bill and the Republicans only 33%.  The GOP needed to deliver only 39% of the vote or 12 more (coincidentally that’s the exact number that the GOP claimed that Pelosi speech turned away from voting yes).  The problem for the Republican Party is no matter how much they hem and haw and complain Pelosi causing the rift, the bottom line is they couldn’t muster 39% (votes they claim they had, by the way…until ‘the speech’) of their caucus to support the bill.  Wall Street isn’t going to blame the Democrats.  Everyone knows the bill is unpopular and delivering 60% is very good in the spirit of cooperation of bipartisanship that the leaders were working with all week.

Do you think Wall Street will give the Republicans a pass on this since, after all, they support their ideology?  Probably not.  1 trillion dollars of wealth is not easy to swallow losing.  True, some of it will be made back after a proposal passes.  However, there is only so much the market will make up in a short period of times and continued large decliner days will just make recouping these losses harder.  With those losses, Wall Street will be looking to take their ire out on someone.  It can’t be the Democrats who, as much as they don’t want to support the investment community, knew it was right for America to support the bailout.  They came through and delivered the votes.  No, it’s the Republicans who are going to have to explain to their economic base that Pelosi’s words or an unrelenting ideology kept them from voting for this package.  If they can pin this on Pelosi (who I still blame in many ways for this mess today), then they will have been able to fool – not the average American who doesn’t understand what’s happening – but Wall Street (who are not your common fool that falls for political rhetoric).

But one might make the point that the reason they couldn’t support the deal was their ‘real’ constituency has been complaining nearly 100-to-1 against the deal (don’t forget, the Democrats were getting the same hate mail).  Here’s the problem.  First, there are a lot of Americans who don’t understand what’s happening and are looking to the President, the candidates, and Congress for direction and leadership – they didn’t get it today.  Second, people are against this deal because they don’t understand how it will affect their daily life.  That’s a bit understandable.  However, as loans continue to get harder to get, people start losing their jobs at a more rapid rate, people continue to lose their homes, wages continue to go down, their investments continue to lose value, and their banks fail – they are going to change their opinion of this deal very quickly.  The potential risks of not doing this deal are very real and will be very evident when they occur, most likely sooner than later.  Washington Mutual failed last week, Wachovia this week, there are rumors of another bank on the brink.  As more and more of the middle-class are touched by these events (or even hear about them) their opinion will change.  When it does, the Democrats will be exonerated in voting for this bill and the Republicans will once again prove they do not have the interests of the Country ahead of theirs.  I do think their leadership tried to get this to pass, but they either didn’t have the will or power to make it happen.

See, in a lot of ways the Republicans have just let the Democrats off the hook.  If the bill would have passed, in theory, money would have loosened up a bit and people wouldn’t feel the pain that this bill avoided.  People would continue to wonder if this was nescessary or not and the Republicans could have continued to attack the Democrats on having an itchy trigger to get something done.  Even if a bill gets done later this week and voters forget, Wall Street will not forget about the 1trillion dollar worth of losses.

Leadership at the White House

Per the Daily Kos:

“Yesterday, McCain swooped into the White House meeting, and by all accounts he said very little, was disruptive and Obama actually led the meeting (by questioning Paulson and House Republican’s). Now, how’s that for true leadership?

At the end, Obama had to speak directly to McCain to enunciate a response, after McCain sat silent for 45 minutes of an hour long meeting.
Why did he go?”

McCain Did Not Read Paulson’s Plan!

I first heard about this the other day and wasn’t near a computer to blog about it.  But this article from The New Republic refreshed my memory: McCain Didn’t Bother to Read the Bailout Plan?
Why is this important?  Well – First, it doesn’t show a leader who is paying close attention to the crisis, as well as showing an interest in knowing the details.  Keep in mind, Poulson’s plan was only three pages.  This is not a hard read. 

Second and more importantly, McCain stated yesterday, ““History must not record that when our nation faced such a moment, its leadership was unable to put aside politics and to focus in a unified way to solve this problem. It’s time for everyone to recall that the political process is not an end in itself, nor is it intended to serve those of us who are in the middle of it. In the Senate of the United States, our duty is to serve the people of this country, and we can serve them best now by putting politics aside and dealing in a focused, straightforward, bipartisan way with the problem at hand.”

Here’s the problem.  How can you first make this claim, including that this is the biggest financial concern of our lifetime and not read the initial plan to bail out the Country?  Really – how?  Second, McCain has made a big deal about coming back to Washington to help spur on negotiation.  How informed does he seem to be if he hadn’t read the initial plan?  Even if there is a compeletly new plan on the table.  The contentions and issues between the Executive Branch, the Fed, and Congress are founded in the concerns they initially had with what Secretary Poulson presented.  Understanding that basis and how it affects negotiations and differences is imperative to play a vital and not political role. 

I would maybe give McCain a pass if it was a 300 page document and got a detailed briefing from his advisers.  But 3 pages? That’s bathroom reading, reading on tarmac, or bedtime reading.  Seriously?  He doesn’t have the time to read it.  There has been a theory presented by Obama that McCain may not be able to multi-task very well.  This might be proof.