Guest Post: The Inside-the-Beltway Take on the Bailout Bill

Reader Lune, who has been a guest contributor on this blog and was once a Congressional aide (health care was his beat) took a gander through his HIll newspapers and was so kind as to write up what they were saying about the Paulson plan. Bottom line: whatever enthusiasm there was for it appears to be waning.

From Lune:

A previous post had a quote from an anonymous congressional staffer about the effect of all of our e-mails, phone calls, faxes, etc. on our representatives. It appears that support for the bailout plan in its present form is rapidly declining. From Roll Call:

The Bush administration’s forceful lobbying effort failed Tuesday to win support from rank-and-file Republicans or Democrats for a $700 billion Wall Street bailout package, though GOP and Democratic leaders still planned to move a bipartisan bill by the end of the week.

. . .

The rank and file in both parties expressed deep concerns about anything resembling the $700 billion that the White House wants, and leaders struggled to keep their Members open-minded in the face of surging outside opposition from a diverse range of voices from former Speaker Newt Gingrich (R-Ga.) and the Club for Growth on the right to liberal bloggers on the left.

. . .

But both sides face heat internally, with liberals upset with what some see as a handout to Wall Street cronies and with conservatives who are appalled at the unprecedented intervention in the free market.

. . .
The political backlash is hitting lawmakers in their offices and mail, with voters wondering why a bailout is necessary and how it got to this point.

“We are a reflection of America,” Rep. Phil Gingrey (R-Ga.) said. “The public doesn’t support this thing because they see it as a bailout for Wall Street and they don’t understand the consequences for not doing it.”

Members of the conservative Republican Study Committee ridiculed the bailout and argued instead for a cut in corporate tax rates and the suspension of the capital gains tax.

And they also objected to being told that they have to act immediately. “The last time I heard that I was on a used car lot,” said Rep. Mike Pence (R-Ind.), who is opposing the bailout.

“Initially I think the whole thing stinks,” Rep. Zach Wamp (R-Tenn.) said after the GOP meeting with Cheney. “Everyone in the room thinks that this really stinks.”

Wamp said lawmakers want some assurance that taxpayers won’t lose out on the deal and CEOs won’t benefit. But Wamp said Members also see the risk that inaction could prompt a fiscal crisis.

“It’s a heavy task to try and convince the Congress six weeks before an election that this kind of rescue plan is necessary,” he said. “It’s going to be a close call at this point.”

Of course, what would Congress be like without the inevitable spin job?

Senate Republicans sought to turn the debate around from one about a taxpayer-financed bailout for Wall Street to one of “market stabilization” that would benefit average Americans seeking small business or car loans.

“What’s important to remember here is that if we don’t take this type of stabilizing action, the cost to the taxpayer in lost jobs, lost savings, lost opportunity, is huge,” Budget ranking member Judd Gregg (R-N.H.) said.

Ironically, it may be the Republicans that prove to be the most stubborn opponents to the Administration. From The Hill:

House Speaker Nancy Pelosi is telling Democrats that she will not support President Bush’s $700 billion bailout of the financial sector unless there is significant Republican support for the controversial plan.

. . .

Pelosi (D-Calif.) has effectively sent the message that if she is going to jump off a cliff to rescue Wall Street, she wants House Minority Leader John Boehner (R-Ohio) and George W. Bush holding her hands when she leaps.

. . .
To get that kind of support, President Bush needs to go on television to speak directly to the public, and get on the phone to rally his fellow Republicans, said House Majority Whip James Clyburn (D-S.C.).

. . .

In the Senate, Republicans have also lined up to oppose their president’s bill, which led Senate Majority Leader Harry Reid (D-Nev.) to worry that he may not have enough Republican votes to pass the package.

“We need Republican votes to help us,” he said. “This is a Republican package and we need Republican votes.”

Several GOP senators voiced frustration over the plan during a Banking panel hearing at which Treasury Secretary Henry Paulson urged members of both parties to approve the package quickly.

. . .
Reid said that his Democratic colleagues told him that as of Tuesday only one Republican on the Banking Committee could be counted on to vote for the bailout.

. . .
“Ownership” was the word of the day Tuesday, as in, “Who’s going to own this bailout package if it fails?” or if it works and voters remain furious at seeing investment bankers on the public dole.

There’s also the question of who has “ownership” of the faltering economy. And so far, nobody seems to want to own either one.

. . .

It’s hard to find even one Republican ready to publicly pledge his or her vote. Democratic leaders are speculating that GOP leaders can count on no more than 40 votes. A Republican aide said if Pelosi needs a Republican majority to bring it to the floor, she won’t be bringing it to the floor.

Perhaps sensing the trouble, Vice President Dick Cheney trekked to Capitol Hill to lobby his fellow Republicans for the plan.

But the meeting brought no public converts. Republicans leaving the hour-and-a-half-long meeting said Cheney was told that the plan lacked the details they needed.

Things don’t look much better on the Democratic side, though some members are starting to think about what they might ask for in exchange for the vote. Reid predicted that Democrats will be ready to approve it as long as there is adequate oversight, executive pay limits and accountability.

This raises the question: if the Republicans are indeed that reluctant to support their own President’s proposals, why are the Democrats so keen to get something passed? Are they more worried than the Republicans that the public will blame them for the unfolding disaster? At any rate, while chances are still pretty good that something will pass within the next week or so, it will most likely be significantly different than the current plan. On the other hand, since Paulson and Bernanke have essentially promised that Armageddon will come next week unless something is done, if the Sun actually rises on Monday and the sky doesn’t fall, perhaps the entire justification for any bailout plan will collapse and we won’t be saddled with this $700 bil (and counting) boondoggle… Time to start calling your Senator/Congressperson!

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  1. Anonymous

    Radical Ideas in the practice of “economics”

    I am not where I could do the math at the moment, but I have to believe that 700 billion entering the banks as deposits could do more on main st, as well as wall st, to recapitalize them.

    What net effect would making everyone deposit it into a cd like account that matures in a year or two? Maybe stipulate a hefty fine for early withdrawal? A wall st savings bond?

    Someone must be able to do some back of the envelope estimates on this….

  2. bg

    Seriously Yves,

    I have contacted my senators. They have gotten the message: there is deep concern about this travesty on the right (me) and the left (you). And for reasons that are more similar than different (fairness, necessity, honesty, democracy). Legislators know that they will face the wrath of their constituents if they pass this. But yet they are still talking about doing *something*. And the *something* they seem to want to do is intellectually driven by a Goldman Sachs world view.

    People won’t protest in the streets until they lose their SUVs and McMansions – and that will take more than a week. What more can we do in the meantime?

    Where are the wise men in Washington? Where is their voice? Who do they listen to?

  3. Anonymous

    The Dems are simply playing the same gutless, brain-dead game that they have played throughout the Bush years. They’re simply terrified of offending — anybody. Because if they DID go out on a limb, they might put their precious November victory in some (slight) jeopardy, and they have no principle, no philosophy, beyond seizing office and all the goodies that go with it. This is the same cowardice and stupidity that has let Bush win pretty much EVERY major showdown.

    Don’t get me wrong: The GOP is like a weird amalgam of mafia gang and psych ward. But at least Republicans will go to the mat from time to time. Gotta give them that. Dems are too fucking afraid, and too fucking stupid to see the inevitable consequences. They roll over, sell out, and ALWAYS dwell on the small-bore “concession”. And then they wonder why everyone thinks they’re a bunch of useless twits who stand for nothing! It’s because that’s what they are.
    — sglover

  4. Anonymous

    @sglover: agreed on all points. The other big thing to realize though… the dems see an opportunity to control wall street… to dictate compensation and manage the heart of the market. That’s very appealing to them. If they’re going to be forced into a bill, at least they’re going to get their pound of flesh and get us closer to their ideal of a managed economy.

    I am against the bill in any form. No bailouts! I contacted senators yesterday and will do more today.

  5. a

    “that would benefit average Americans seeking small business or car loans”

    A country that believes there is something like a Constitutional right to a car loan, will not survive. Americans need to consume less. They need to buy fewer cars. The system was in the process of working – by providing fewer or no car loans, fewer people would be able to buy a car, and consumption would go down. Instead, Congress will try to ensure that Americans can continue consuming. Since this is impossible, something else in the system must break, the only question being what.

  6. Vijay

    Thank you for this Yves! Mish has lots of resources for who is the best to contact in the Senate. I don’t think there’s much point to contacting folks in the house.

    A filibuster in the Senate is still the best hope.

  7. Richard Kline

    Lune, ‘preciate the effort. If, when, and as you have a sense of who might be the optimal focus for further letters, calls, or contacts on the Hill, give us the high sign and we’ll hit ’em with a flying wedge.

    Vijay, I disagree with Shedlock on that tactic (all Senate), not that the Senate is unimportant. The House crafts spending bills: All meaningful debate about the _form_ of this proposal will happen there. —And that is the best place to ‘talk it to death,’ by asking the real questions. And furthermore, ALL of the House is up for re-election in six weeks, so the fear factor there couldn’t be higher. By the time any proposal reaches the Senate, pressure on any one person who would try a filibuster would be incredibly intense. Better to derail this baby, or to turn it into something altogether different before it ever leaves the House.

    Shedlock wants no bailout, and his icons are all on the R side of the aisle; that’s his position and prerogative, and he’s surely putting his shoulder to the wheel on this, which I couldn’t appreciate more than I do now. But tactically, he’s thinking with his values rather than procedurals. Cover both Houses of Congress is all I’m sayin’. And lean extra hard on the Demos: As summarized by Lune, it’s the Demos who are wimpily straggling forward on this, in large part because as a party they are wholly sold to corporate capitalism, and they feel, rightly in my view, that that system and worldview are crumbling on their watch. Good riddance, and time to put the democracy back in the Democrats so they look more like people and less like rats.

  8. Anonymous

    bg: “there is deep concern about this travesty on the right (me) and the left (you). And for reasons that are more similar than different (fairness, necessity, honesty, democracy).”

    See the diagram here. There are some profound truths in this diagram, and one is that true liberals and conservatives are not all that far from each other.

  9. Lewis B. Sckolnick

    Sending money in as deposits sounds very nice for Main St banks but it will also resuscitate the crooks.

  10. Lune


    I’ve been far, far away from the Beltway for a few years, so I don’t have as much details about palace intrigues and who’s up and down in the power struggles as I used to. Perhaps Yves could nicely ask her congressional staff source for some advice on specific people who might need some extra “convincing”.

    That said, my own advice would be to first of all contact your own senator / congressperson. All politics are local, and even though Chris Dodd is chairman of Banking, the only people who decide his re-election fate live in Connecticut. He really could care less what any other voter thinks. That’s not just him, rather just a general observation about elected officials. That’s why you should contact your direct representatives first, because they care much more about your opinion than anyone else in Congress.

    Furthermore, this is a big enough issue that every Senator, and not just those on the Banking cmte, will be having substantial input, and the leaders’ offices will be whipping the vote hard, so your state’s senator’s opinion will likely matter even if they’re not Dodd or Shelby.

    That said, Dodd unfortunately comes from CT, home of a ton of banks, insurance companies, and hedge funds. While he’s not a bad Senator, all politics are local, and those are his hometown industries. Think of Michigan Senators opposing fuel efficiency standards, or Biden voting for credit card company initiatives (Delaware and SD being centers for credit card operations). This is also why Chuck Schumer (D-NY, member of Finance and Banking cmtes) frequently supports Wall St. friendly legislation even though he’s otherwise generally quite liberal.

    Those two, plus Menendez (D-NJ) and Johnson (D-SD) are the only guys who view Wall St. as a hometown industry, so that’s only 4 dem votes. I suspect Dole (R-NC) is the one Republican on the cmte who’s voting for the bailout, since BofA is HQ’ed in her state, and Charlotte NC is second probably only to CT as a banking/insurance capital of the country.

    The rest of the banking cmte membership is primarily rural and industrial states that have little love for Wall St. bankers.

    After you've contacted your hometown reps, if you want to do more, I suspect Dole would be the most susceptible to pressure, as she's locked in a very tough re-election race (current polls put her even to behind her upstart Dem challenger). If any of you are from NC, or in any way have a connection to that state, now's the time to work it :-)

    I'm not sure who's leading the charge in drafting the legislation, whether it's Dodd in the Senate or Frank (D-MA, chair of Financial services cmte) in the House. Most likely, they (or their staffs) are working together on this, but someone working on the Hill probably would know better who's leading the effort.

    Richard, while you're correct that technically all spending bills must originate in the House, the party in charge usually coordinates (especially on important legislation) between House and Senate so that whatever passes one body can be passed in the other body, unless there's a serious difference of opinion between the respective chairmen, or a specific, tactical reason to advance dissimilar bills (e.g. getting different proposals through the Senate and House, then using the resulting reconciliation conference to put together a completely different bill that you can ram through both chambers on an up-or-down vote).

    At any rate, not seeing the specifics of the legislation, the fact that it's being debated in Banking and Financial Services rather than Finance and Ways & Means (who have jurisdiction over tax issues) implies that they're writing it in a way that it isn't technically a tax bill. That's right. They're going to spend $700 bil without classifying it as spending or actually paying for it with a tax…

  11. Anonymous

    “This raises the question: if the Republicans are indeed that reluctant to support their own President’s proposals, why are the Democrats so keen to get something passed?”

    You’re kidding, right? Dems expect to keep control of Congress, and have at least a 50% shot at the presidency. Why wouldn’t they want to start their unified rule with a $700 billion, unaccountable war chest, which the Repubs already took the heat for?

    Just as they aren’t going to repeal the Patriot Act, or telecoms surveillance, Dems aren’t going to give back the $700 billion either. Both parties love power and “free money,” even if they have slightly different priorities for wasting it.

    “Perhaps Yves could nicely ask her congressional staff source for some advice …” — lune. Yves is a her? There’s no bio posted, so I had no idea.

  12. Matthew Dubuque

    Matthew Dubuque

    As part of any RATIONAL attempt at crisis management, I have been urging that we be presented with the WORST case scenarios as to what can happen if we pass this bill.

    We should not base ALL of our analysis on the BEST case scenarios put forth that the taxpayer “MAY” turn a profit.

    Competent crisis management ALWAYS demands WORST CASE scenario analysis as well.

    Take just ONE example that follows.


    I have found nothing to rule this out.

    The current plan is to buy these securities ABOVE market price, i.e. at a hold to maturity price.

    However that hold to maturity price may be flawed!

    Mishkin recently pointed out at Jackson Hole that when house valuations become underwater by 10% default rates SKYROCKET.

    If housing prices fall outside of the predicted range over the next three years, the yield to maturity price will prove to be false because the underlying mortgages are producing a far smaller revenue stream.

    Combined with leverage, we could LOSE more money than we put up.

    Just ONE possible WORST CASE SCENARIO.

    What are other possible worst case scenarios?

    We need to think this through.

    Matthew Dubuque

  13. Francois

    Lune wrote:
    “…the fact that they’re writing it in a way that it isn’t technically a tax bill. That’s right. They’re going to spend $700 bil without classifying it as spending or actually paying for it with a tax…”

    I’m not that well-versed in Washington politics but how do they hope to pass a bill with that much taxpayer’s money at stake without appropriations? Doesn’t Congress appropriate monies via tax or spending bills only?

  14. VoiceFromTheWilderness

    The Democrats could care less about public blame. They haven’t minded the public reaction when they funded a war they promised to end, or failing to enforce oversight provisions, or investigate clear crimes. No it is now well established that the democratic party is tops in ignoring the issues of it’s supporters.

    The Democratic Party on the other hand has a voting record that is daily getting stronger in support of the interests of massive corporations. The idea that there are two parties in this country has been false for almost half a century, but it has gotten extremely false since Clinton. (the reason the republicans hate Clinton is because he was so conservative he stole their base)

    No if democrats ‘want a bill’, it’s because their owners want one, not because of the plebes.

  15. Anonymous

    At the juncture, anyone who still supports the republican party or their core priciples, standing in witness of what the result of the near complete implementation and execution of those priciples BY republican in near total control of the government has resulted in cannot, in my estimation, be considered a sane, rational person. EVERYTHING that has occured in the last 8 years, up to and including Paulson’s attempt to become financial dictator of the US, points to an all out attempt to implement an oligarchic dictatorship. EVERYTHING they have done is in ALIGNMENT with that goal. If that is what you choose to support, they you most surely do not support ‘America’, it’s core priciples, it’s constitution, it’s declaration of independence or habeaus corpus. Neither are you a patriot or patriotic.

    I DETEST how spineless and ineffectual the democrats have become, but it’s understandable after 9-11. Who could have anticipated the utter lawless ruthless efficiency of Bush and Cheney and his minions in steamrolling and bludgeoing them into submission.

    The Bottom Line remeins, this is a REPUBLICAN ideology and long term plan and it is the REPUBLICANS driving it’s implmentation.

    ANd that the demonstrable result is massive destruction everywhere on looks and as far as the eye can see.

    I was non political and non partisan in 2000. Now, while I don’t particularly like the democratic party, I am DEAD SET against the republican party. And anyone who is not, is no longer truly sane. Or is an utterly corrupt greed driven power mad monster.

  16. Anonymous

    Thank you anon at 10:40. Yes, lots of the Dem leaders are spineless wimps. But this is a REPUKE bailout plan. Blame this on those asswipes.


  17. Anonymous

    For all the outrage being expressed, especially by the Republicans, where is the admission that Ron Paul has been predicting just such a scenario for years. I don’t see the press, Republican legislators, or anyone else, asking him for his wisdom on the subject. He embodies the opposition to these kinds of outrageous political machinations that the Republicans are screaming about. The Republicans should be having a V8 moment – we could have nominated Ron Paul.

  18. Anonymous

    Not only a Repuke bailout plan, but also a Repuke first sledgehammer a hole in the bottom of the boat plan.

    The Alpha and Omega of disaster capitalism.

  19. donna

    The concern in the liberal blogosphere is that Dems pass this, and then Reps use it to run against them.

    It’s not a TARP, it’s a TRAP!


  20. Anonymous

    Members of the conservative Republican Study Committee ridiculed the bailout and argued instead for a cut in corporate tax rates and the suspension of the capital gains tax.

    Doesn’t this prove that the Congressional Republican Party needs to be taken out, blindfolded, and then shot, one by one, on the National Mall before a vast crowd of citizens, with nice picnic areas and big screen TVs so that regular folks can laugh and party while watching the action?

    That’s after the ones in the White House are hung.

  21. Dave Raithel

    Anonymous of 2:08 pm EST pretty much beat me to the punch, though since I post non-anonymously, I can’t afford being so specific. But I can safely say that the RSC “ridicule” proves either their ignorance or their cynicism – everybody who follows blogs like those knows that regardless of what nominal rates may be, effective tax rates on corporations are trivial. Mike Pence’s “I’m at a car lot” banality illustrates for what Sarah Palin was picked.

    Mind you, I hate the rich, I have no friends in finance or on Wall Street – but I cannot ignore that too many other people of all other political ilk are convinced that if something ain’t done, then even something worse is going to happen. So I’m with the “whatever else the details, taxpayers get equity and CEO’s get reamed and mortages are fixed” school of thought.

    As to the above inquiry re Ron Paul – he was in fact on CNN Sunday morning, he’s of the opinion that nothing should be done on his expectation that in a “rough year” things will be otay…

    In all this, there are two very distinct considerations that get conflated – the causal, and the moral. I guess one’s moral position on this (no more moral hazards…) could be: what happens no matter how bad it will be will be right. If I thought that the natural disposition of Americans these days was anti-fascist, I might be persuaded. People who want to gamble with economic collapse yielding progressive outcomes are braver than I am…

  22. Anonymous

    Hey eh, thanks for the link to an Yves bio. And thanks Yves, for this great blog.

    It’s just that … it puts a different, rather provocative spin on the name of this blog, “naked capitalism.”

    Sorry. Carry on!

  23. Richard Kline

    Ho Lune! Thanks for the roughout on the probable process here. I figured that this bill would be a coordinated effort, though I didn’t emphasize that. The point of my urging was more that we pinch the tap end of the hose rather than the nozzle end, at least as the best way to choke off the worst. And your comment on this being doen in BankingCom is a telling one I hadn’t put my head around. I didn’t expect Congress to pay for this, but going through Banking will surely expedite the effort, which in this context is bad. *blecchh*

    I much agree with you that the only public pressure Congressfolk _really_ care about is that from district constitutents. Still, the more that the noise is “NO,” the more that may color their thinking. One can only hope.

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