The Democrats have been had, again, by the Republicans.
After Paulson delivered his scare show to Congress leaders last week, demanding a $700+ billion check without checks and balance, it were the Democrat leaders in Congress, Pelosi, Schumer, Frank, who immediately stepped forward and agreed in principal that such a lunatic plan was needed.
Blinded by Wall Street contributions to their campaigns, they publicly declared that ‘something must be done’ and followed the lead of the most despised president ever like the sheep they are.
They attached a bit of window dressing to the Paulson plan but left out any real issue progressives should care about like the mortgage modifications in bankruptcy courts.
Yesterday evening the Republicans pulled the rug and the deal is off.
These Republicans and McCain will now be able to tell their constituency that it was them who protected the taxpayer and that the Dems and Obama were indeed the people who wanted to throw money at Wall Street.
This was a huge ploy and the Dems fell for it.
Karl Rove must be laughing his ass off.
Added:
This is not a crisis over liquidity and providing liquidity, while
in some cases necessary, will not relieve the blocked interbank credit
markets. This is a solvency crisis where many financial entities are
suspected to be bankrupt. The people in bank A know how they fudge
their own balance sheets to hide the losses. They correctly suspect
that bank B does the same. That is the reason why A does not want to
lend to B and B does not want to lend to A. Those who have money prefer
to stay liquid instead of taking the risk to lend it to some bankrupt
entity.
That situation is not good and it will eventually lead to trouble
for Main Street. There are ways to get out of this, but the Paulson
plan was about the most ineffective and wasteful way one could think of.
People need to sit back, and think through the issues to come up
with something comprehensive. Paulson pushing the panic button or
Cramer screaming on TV is no reason to favor giveaways.
The Dems should prepare a real stimulation program, several hundred
billion dollars of infrastructure investment, and be prepared to lend
to Main Street when the banks fail to do it. Buy up foreclosed homes
and destroy them to relief the housing market of excess supply that
further pulls down the housing market.
Help the people, not the banks. Those, over time, can and will sort out the solvency issues themselves.
There are many structural issues that must be tackled by the next congress.
J.P. Morgan just took over the failed Washington Mutual in a quite
lucrative deal. It is now the biggest bank in the U.S. with Bank of
America being number two. This giants will have to be split at a point.
Companies that are ‘too big to fail’ must never be allowed to exist.
They disturb the markets by the implicit government insurance that
comes with the ‘too big to fail’ status.
The whole finacial system must be renovated. But that is nothing that can be done within weeks and by giving away money.
