Washington’s game of chicken on Wall Street crisis

September 26, 2008 at 2:41 am · Filed under domestic policy, Economy, Politics, Uncategorized ·Tagged Bailout agreement, Don't blow this up, Eric Cantor, Harry Reid, Henry Paulson, Jeb Hensarling, John Boehner, John McCain, McCain suspends campaign, Nancy Pelosi, President Bush, Republican Party, Robert Bennett, Wall Street bailout

First there was agreement – in principle – on a bailout package, and now there is not.  Why?

Secretary Paulson delivered his sweeping three page proposal to Congress last Friday.   Congressional leaders on both sides of the capitol (and the aisle) began negotiating the parameters of a retooled deal. They debated priorities like, does Paulson really need this much money upfront?  How do we know how much is needed?  Will taxpayers be left holding the bag, or is there a way to structure potential buyouts in such a way that taxpayers get any profits and Wall Street CEOs get chastened (with limited compensation packages).  And is there a way to help stop more home foreclosures?

All the while that the bipartisan, bicameral negotiators defined and addressed these questions, John McCain was refusing to take any clear position on the deal.  On Tuesday he claimed to not have read the Paulson proposal yet.  By Wednesday, a deal was in sight.  Word was most Senate Republicans would support it, thus Senator Bennett’s comment today that they had an agreement.

But while McCain waffled, House Republicans, led by the most conservative of them, were balking. They are up for re-election and a taxpayer bailout fundamentally violated the absolutist free market principles to which they adhere.  So even if John Boehner was open to the agreement taking shape in negotiations, it doesn’t mean the caucus is with him.  And even though Paulson reportedly reached out to McCain on Wednesday (the excuse to suspend the campaign), it’s not clear McCain can bring the caucus along either.  Speculation was (and still is) rampant that the rank and file GOP want to oppose the deal, while the Democrats grudgingly sign off.  It could pass, just barely, Bush would sign the bill, and Republicans would bludgeon Democrats over the next month as the party that used taxpayer money to rescue an unrepentant Wall Street.

And so that is the dynamic that took over in today’s meeting in the White House, in which John McCain reportedly took no stand and said little at all.  Neither House Minority Leader John Boehner nor John McCain can deliver the party, or afford to break with it.  And Nancy Pelosi and Harry Reid aren’t willing to risk being backed into a corner and locked into a deal with Washington’s least popular Republican, when $700 million dollars are at stake.  The question arises, should they just hold their nose, do the right thing and hope to talk taxpayers through why this was this right thing to do?  I’m not holding my breath on that one.

So what we have here is a game of chicken.  The upside to McCain will be if he and his renegade Republicans can force some of their alternative ideas onto a deal that gains bipartisan consensus. But no one has explained these ideas and McCain hasn’t backed them.  As I understand it a group including Eric Cantor (R-Va) and Jeb Hensarling (R-TX) want Wall Street “to pay for its bailout” by offering them government backed insurance, sort of like a homebuyer might buy mortgage insurance.  But if it is government backed – whatever that means – it still sounds a lot like our tax dollars at work, and I don’t see any potential profit at the other end, either.

So, could this all fall apart?  McCain has staked — rather, suspended — his campaign on getting a deal.  If he really wants a deal, can he force Republicans to move to the middle?  After the White House meeting with the candidates and congressional leaders, it wasn’t looking good.  Paulson later pleaded – reportedly on one knee?? – to Democrats, “Please don’t blow this up!”  To which Pelosi said, ‘We’re not the ones trying to blow this up; it’s the House Republicans!” “I know, I know,” Paulson sighed.

Maybe it will turn out that Paulson, Democrats and Senate Republicans were being too easy on Wall Street and the sky won’t really fall without this bailout.  Maybe there is a better way to restore confidence without the government footing or fronting the bill.  No one is crazy about the idea of buying “toxic waste,” especially with Ben Bernanke admitting in Q and A on Capitol Hill, he can’t guarantee this will work, and that he’s “been wrong quite a few times before.” If there is a better way, I’d sure like to hear it.

It is equally possible that the Republican party (minus, unbelievably, President Bush), with a little help from the Democrats, gambled the stability of our capital markets today — and thus ordinary Americans’ access to home, car, construction or school loans for the forseeable future — for the sake of this election.  What else could we have expected them to do?

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