Tuesday, September 30, 2008
The Political Hoedown
Bailout Battle; In the Polls; Palin's Peril
Monday saw the first (failed) vote of the bailout package proposed by Secretary Paulson and amended by Congress, Obama rise steadily in the polls and a growing spate of stories about the upcoming VP debate this Thursday. It's a heated time in politics and with the economy, the two often intertwining with disastrous results.
You've read (hopefully) my analysis of the first debate, and I stand by my conclusions: Obama wins in public perception, supported by numerous polls, while McCain wins when one actually reads the answers and sees the substance present.
Now we move on to the 800-lb gorilla in the room: the bailout.
But first, let's get poll news out of the way.
Obama has seen a definite bounce in all the polls over the last few days. His Gallup three-day tracking position is at 50% to McCain's 42%. It's not the widest margin between the two (Obama's led by as much as 12 points in other polls, McCain by 10), but it is supported by a number of other major polls that show this is not a mistake.
With the stock market (DJIA) tanking nearly 780 points today, or 7%, and the negative economy tied more to the Republican White House than the Democratic Congress, expect McCain's numbers to stay low while Obama racks up a great weekly running average going into the VP match-up this Thursday.
I fully expect this gap to narrow only by a few points in the next two weeks, until the town hall debate. Nothing short of McCain pushing through a Republican-backed bailout proposal that protects investors and regular Americans far more than the Democratic-slanted one will make his numbers rise significantly. A stellar performance by Palin (utterly unlikely) would only add 2-4 points, but probably detract only a point from Obama's overall.
Historically, incumbent parties and candidates do bad when the economy is in the toilet. Voters pushed out Bush Sr., Carter, Ford and Hoover, all suffering from bad or stagnant economies in their election years (granted, each had other issues to contend with). Association games usually only go four or eight years back, so the public sees failure and thinks, "Who's in charge now?" They don't thing about Congress, though it's been punished in the past, but the top seat; ignore legislation passed before the current administration, only what wasn't passed recently to stave off destruction; and believe whatever political opponents to the current administration say instead of looking back at historical market trends.
Gallup, Rasmussen and Zogby have great tracking polls that have been more/less in line with endgame election tracking, where we find ourselves. Check them out often to see how the game is shaping up, and use RealClearPolitics and their running average of all major, non-partisan polls.
Whew, that economy of ours - what a time we live in! So what's the deal with the $700 billion House "bailout" bill that came from Treasury Secretary Paulson and the Administration, was tweaked by Democrat leaders, balked at and (slightly) amended further by House GOP leaders and not passed by a Dem-controlled House yesterday? It's a big story, a big economic deal, a make-or-break issue for both presidential candidates, a possible lead-in to economic collapse and possibly the most important "real economy" issue since we gave up the gold standard.
Why aren't U.S. citizens beating down the doors of their Congressmen to pass this bill and keep us from a second Great Depression?
It's a bitter pill that we have to take, but it can be made to taste just a mite bit sweeter and the American people (and Congress) know it.
In short, the bailout or rescue package bill was aimed at infusing the U.S. economy with cash and credit, buying up bad mortgage-related securities from struggling investment firms and banks. There are other powers inherent in the proposal and approaches that can be taken by Treasury to provide a backstop against further institutional or private loss. There are also some clauses that deal with the companies and their top execs who participate, namely that the companies will be giving the U.S. government warrants to buy chunks of themselves and CEOs would have to accept salary caps (except they wouldn't, exactly, if the contracts were renegotiated, and "golden parachute" or termination clauses would remain in many cases).
In general, though, the idea is to take struggling mortgage backed securities/collateralized debt obligations off the books of similarly struggling companies and onto the government's own, with the intent of selling them at a future time, hopefully higher or even with what they will pay the companies.
It's a flawed plan, and you can't argue otherwise. But the alternative to not acting quickly, proponents argue, would be devastating.
Think about it this way. Every individual in American would have to pay $2,335 (roughly) to cover the cost of the $700B price tag attached to the bailout. But what would the cost be if we entered a prolonged recession that would turn into a (possible) great depression? Do you think most people would lose just $2,335?
So this bill goes before the House of Representatives, and by Sept. 29 - after all the nonsense the week before with the bill gaining and losing and gaining traction, McCain's 11th hour return to Washington followed by a reluctant, petulant Obama, House GOP revolting at what appeared to be no interaction by them at all due to stonewalling by Democratic leaders - we think it's going to pass. Nancy Pelosi, Rahm Emanuel, Steny Hoyer, Barney Frank - the Democratic leaders of the Congress all told their people and everyone else to vote for this act to save the American people the tragedy of a depression.
Except it didn't happen like that. Not exactly. You see, the House is split between Republicans and Democrats, but the latter have the majority, enough to pass any bill that requires only simply majority. Ostensibly, you'd think that if the entire party leadership were behind a bill, it would corral the rest of the rank-and-file Dems to vote "yes" and regardless of the GOP's response, it would pass. Minority Leader John Boehner (R) stated he thought the support was there by some Republicans, that though many disliked the bill, votes were there.
"$700 billion is a staggering number," Nancy Pelosi stated to the House just before the vote was taken, "but only a part of the cost of the failed Bush economic policies to our country." Not many words, but it poisoned the deal.
GOP members who may have backed the bill balked at supporting something that, to start with, their arms were being twisted to pass and now was being blamed on their party and only their party, when true culpability was scattered through nearly two decades of Congress and two Administrations.
Still, 32% of Republicans voted in favor, along with 60% of Democrats. Ah, there we go.
40% of Democrats in the Democrat-controlled House voted against something their entire leadership supported, had pushed through. 40% either voted their conscience or for fear of their constituents voting them out. Regardless, they made their choice against their party. Nancy Pelosi, confident in victory, had Sunday and earlier Monday told her compatriots to vote their heart on the bill and not be feel obligated to, essentially, be the fall guys when the bill passed. Best to let secure or retiring Dems and who-the-hell-cares-about-them Republicans be seen supporting it.
For politics and principle, the Dems didn't get the votes. For seat security and principle, the Republicans denied them passage.
Now we are left to figure out what comes next. The economy needs something. There can't really be an argument against government action to some degree. Maybe they lower the amount to $350B and add a gov't insurance clause for certain businesses, placing less taxpayer dollars at risk of a negative return should Treasury get screwed when they (eventually) try to unload the securities they intend to buy.
One other idea called for the gov't to get preferred stock from companies in exchange for a cash infusion, with dividend payments providing a positive return for taxpayers. There are hundreds of economists, businessmen and politicians gunning to get their idea, if only in part, written into the new bill. Many see Paulson's original proposal as autocratic and extreme, a hammer blow to a problem that requires laser-precision.
Other pundits say we don't need this package at all, but a new sort of limited regulation, some advisory boards, the aforementioned insurance - but no whopping check. This highlights who are the true libertarians in our country, those who want the government to remain as small and out of our hair as possible, possibly to the detriment of the country.
Personally, I dislike the deal. I don't see it as a "bailout" of Wall Street. That word carries with it some unsavory definitions, like we're salvaging these firms who made the stupidest choices on their own. In fact, this is a rescue mission. Not only have Wall Street investment bankers abused the looser credit system, the laws letting low income families get mortgages they shouldn't and the deregulation breaking down barriers between banks and investment firms; but average people are to blame as well. Those mortgages aren't paid down by ghosts but real people.
Main Street is as culpable in this crisis as anyone else, as full of the same sort of greed and want that "fat cats" in glass-and-steel are. It's just easier to blame the big guys, to say the were enabled to this evil through the similar evil of deregulation, and that they, Luciferesque, ascended from the fiery Pit with tantalizing temptations. Own a house or condo you never could. Buy a security product that's new and backed by mortgages, things which rarely go into default in large numbers.
No one was enabled or pushed to do what they did; free will is beautiful, if you believe in it. It makes people responsible for their actions, not victims of circumstance or an unseen force. We make our choices and suffer the outcome. Many are suffering, but not everyone. Not a majority by any stretch. In fact, only 25% of sub-prime mortgages are in foreclosure, and sub-prime mortgages are only 7% (at most) of the total number of mortgages out there. The problem with all these foreclosure figures, saying it's X% higher than the last ten years, is because we're on the other side of the peak of an amazing boom economy. Of course the numbers look dramatic when taken out of historical perspective. In 1934, 40% of homes were in foreclosure. We are no where near that level.
And that underscores another aspect of this crisis: confidence. Credit exists in part on real numbers in ledger books - cash on hand, debt outstanding, receivables, expenses, etc. Do you know it's also tied to confidence? The dollar bill is a piece of paper that we say is worth a certain amount of money, placing economic value on something that, stripped of its economic importance, is just ink on paper. This is also called "fiat money," and that means it's worth what the government says its worth, in the absence of some form of hard backing, like gold (which would make it representative currency). We can easily see that intangible, unquantifiable factors can sway institutional credit, the value of the dollar, spending levels - all tiers of the economy.
Though it's very popular to say this, I will chime in and attach some blame for the "crisis" on the media's doorstep. If many stations were not hammering home with bold headlines, ominous music and graphic obfuscation that we're in crisis mode or economic meltdown or financial peril, many people would honestly not think we were. Psychology is playing a large part in all this. Traders on Wall Street are smart, but even they lose when playing chicken with the dire pronouncements of CNBC or CNN or the Financial Times or the Wall Street Journal.
Will the economy collapse if we don't get $700B now? No. Will it collapse if nothing is done? Again, no, but it will decline sharply for the short term (say, two or three years) while the losing parties go bankrupt, are absorbed, scale back activity and in general, limit our economic growth. This would be a depression.
I have great confidence in capitalism and the free market to correct itself, even if that correction is a slap in the face, a punch in the gut and knee to the groin. We've seen bubbles pop, and this is no different. The credit and mortgage bubbles, tied in to every American alive, might seem farther reaching than when the Internet went bust. Not everyone owned tech stocks, but most do own houses and/or cars and/or credit cards.
We are a highly leveraged society. People loaning other people their confidence in the form of currency. Business relies on this for payroll, as "anonymous" stated in his comment to the last Hoedown. It is necessary to have stable credit. We can take a hit for a while, some companies and people will suffer and you know what? That's life in a "free" market, capitalist society. The risks are known that if you can't pay, something will be taken to cover that payment eventually, be it lamp, car, house, wages, corporation, etc. Returning to the overall topic, economic rescue, that is exactly what we have to do - rescue a faltering financial system before it starts dragging greater than 2% of mortgages nationwide. The collapse in confidence will trickle up and down simultaneously, with consumers not buying, hoarding currency, while corporations are unable to meet payroll because banks are unable or unwilling to risk their books - their confidence - in loans.
Lowering lending rates to free up capital, lowering taxes, affecting the reserve requirements - these are tools in the toolbox acknowledged by Paulson, but they aren't seen as efficient for a situation of this size. We've moved beyond for any number of reasons. Grander, more immediate ideas are required.
Things are moving forward still, with the FDIC accepting both McCain's and Obama's advice on raising the insurance cap for single and joint depositors. The House was not in session Tuesday, and won't be tomorrow either, due to the Jewish holiday, so we won't see another vote until Oct. 2. The Senate, however, will vote in a bill Wednesday. When the grumbling Congressmen return on Thursday, potentially in light of the upper house's positive vote, we'll see if they can pass a bill or send the markets screaming down another 777 points.
This Thursday, possibly hours after another failed vote, Sarah Palin and Joe Biden will go head-to-head in what may be the most watched VP debate ever. And the most important.
In one corner, you have three-and-a-half decades of Washington experience, thousands of interviews and Q & A sessions tucked away - Biden's experience handling tricky "gotcha" questions and more seasoned debaters is likely a great boon to him. Though he'll have to reign in any snarky comments that might come out sexist, he still has the odds on his side, probably 3:1.
Hailing from Podunk, Alaska, weighing in at just sixteen years of political experience (and I'm including city council), with few national-level interviews and only off-camera question sessions with voters on the road, Sarah Palin is in for a beating. It'll probably be historic, the flames that will engulf her as Biden relentlessly assails her every answer and position. Can she beat him? Yes, a monkey could if they got Biden to start rambling about make believe history. But the odds are more than out of her favor. Right now, you might be favored to win the debate when you yell at the TV screen after a Joe B response you find unacceptable.
Palin is being sequestered in McCain's AZ ranch with the most senior members of the campaign guiding and training her. The lesson: be yourself. She has been so stifled by all the ex-Bush handlers brought in to make her seem "intelligent" that a gal who really is sharp is dulled and robbed of much-needed confidence. Larry Kudlow, of CNBC, had great things to say about her after early 2008 interviews he conducted, especially her grasp of the issues.
Should she shake all she's been force-fed since the convention and go back to the Alaska McCain-with-ovaries maverick, it'll be a debate - a fight worth watching.
I am tired. These last few weeks have worn me out, and there's still a month and change left until the votes are cast.
My opinion hasn't changed. It's Obama's to lose. He can win this without much effort if he stays under the radar and lets the Bush Administration drag McCain down, regardless of if it's fair to do so.
More after the debate.