First Diary
If people on DKos are going to criticize the rescue vote, who will be hurt the most? Will it be easy to use the result to criticize the Bush Administration and Republicans, or will the Democratic Party leadership suffer? Do the readers and commentators on DKos care if they hurt the Democratic Party leadership? Is it more principaled to criticize a poorly conceived omnibus bill that may save the world's financial system? Are there good and necessary aspects to the Senate Amendments resulting in the Emergency Economic Stabilization Act of 2008? Was a better bill waiting in the wings? Would a delay have cost the treasury more than any benefit from a better bill? Is McCain's vote for the rescue plan a maverick break from his party, or can he manipulate the result to criticize Barack Obama and Joe Biden?
--I try to flesh out answers to these questions below the fold--
First, I expect there to be more and better answers in the comments than in my discussion. However, to get the ball rolling, I will assert that the Democratic leadership is more vulnerable than the Republican leadership. As explained recently by Kos, we may not be mainly interested in defending the Democratic leadership. Crashing the Gates, Taking on the System, etc. More and better Democrats are the goal. Changing the discourse is a great goal and DKos has been part of the events leading to the First Critical Election Since Reagan <TM>. The biggest bully pulpit is the White House, not the Speakership or the Majority Leader position. The leaders of Congress serve more like the Chairs of the Board(s) to the President's CEO position. The position for influencing the culture is the Presidency, not the Chairs. Bill Clinton had a subtle effect on the culture, but he mostly triangulated the existing mindset.
Pres. Bush is weak now. The presidential candidates had their opportunities to attempt to influence the debate. McCain showed an ineffective "elephant in the china shop approach" that didn't seem effective in influencing House Republican rank and file or the tone of the debate. Obama stayed quiet until he offered a few amendments and modifications around the edges. His time will be after the election. Now is not the time to stir the pot and put the election of Barack Obama at risk. For now, Pres. Bush and the leaders of Congress have the spotlight in signing an unpopular bill. Bush Signs and Pelosi Signs.
So far, I have spouted opinion. Who voted for the bill?
House Roll Call Results
The NYT has a more interesting presentation of the vote mapped and charted here:
NYT map and chart
Click the tabs to see the views.
On the map, it is clear that the vote was bicoastal and overwhelmingly dominated by Democrats. The rural areas are where the vote against was concentrated. Are the urban Democrats ignorant or did they sell out to the money interests? I don't think so. I think that the rural reps are more vulnerable and their constituents are less likely to feel a direct connection to their lives right now.
So, if the sweeteners provided cover for 32 more Dems and 26 more Reps to have a better story to tell their constituents, were the sweeteners bad? They included everything from AMT relief extension to RE credit extensions to FDIC coverage increases. My bias is that the wind industry has been working to get a PTC extension for over a year. American Wind Energy Association legislative link One time this year, cloture in the Senate failed by ONE vote (guess who was unable to get back to the Senate floor when 2 traveling companions did? McCain). Delaying PTC leaves vulnerable more than $16 Billion in investments in wind power next year. Already, the delay has affected the timing of planned projects. For a few Billion $ in tax credits, many Billion will be invested. The PTC is stretched over 10 years and payment is $ 0.021 per kWh. This means that as wind energy capacity increases, coal projects are less likely. The race is on, can the U.S. increase its RE infrastructure faster than the growth in demand for electricity for the coming plug-in hybrids, etc? Wind power is the cheapest geographically diverse source of RE. Biomass is more expensive and geothermal is only practical in select areas. Wind is strongest and most viable-- you guessed it-- in the middle of the country, where there was strongest opposition to the bill.
As far as alternatives in the wings, George Soros was out recently saying that buying into the finance companies was a better way to address recapitalization of the firms. Usually, when a big money white knight comes to the rescue, the price is control of the BOD of the company needed the money. This is the MO of the Greenmailer. Problems with this approach include that the objective is usually to cut jobs and return to profitability that way. This is how Boone Pickens and Carl Icahn turn a few Billion into many Billion, not how the Federal Government would act. Do we really want the Federal Government to control the BOD of major private industry and be in direct competition with other firms? This is the dilemma of Boeing vs. Airbus. But at least in airline manufacturing, Boeing is based on a separate continent than Airbus.
The way the plan is written, the government will negotiate to buy the toxic mortgages that are decreasing in value on the market. Included in the deal would be warrants for shares in the companies that need to sell their low-quality assets. The warrant provision was supported by Barack Obama. So, the government would control the mortgages and be able to offer work outs to the home owners (adjusting the principal and interest). The government will have warrants for rights to shares with a just-out-of-the-market strike price and a term of three to five years. If the company dumping assets into the program regains its footing as a result of the rescue (one main point of the exercise, along with being able to deal with the homeowner directly), then the treasury has an asset it can sell for much more than it would be worth now. If the company doesn't survive or doesn't thrive and increase its stock price, then the warrants expire.
The government would hold the mortgage, which is the key to helping the homeowner. There are three basic conditions that the purchased mortgages will be in-- non-performing and worthless, performing (some of these may be under water, too), and mortgages needing work outs. The price for the mortgages would be much below par or the company would not need to sell to the rescue fund. So, the purchase might be at 50% of the face value of the mortgages bundled together. This 50% discount can be used to fund the principal and interest discount in the work out. Once the good, performing assets are identified, they can be sold into the market at face value. The non-performing assets can be the intense focus of some work out policy. Some assets will be worthless. A policy for dealing with worthless, non-performing assets must be developed. Does the Federal Government ever want to foreclose? Under what circumstances?
The problem with a delay to develop another plan is that the possible partner financial companies are getting weaker by the day. Nobody wants to lend to anyone. Company by company is going bankrupt or selling at fire sale prices. Fewer and fewer companies are left to compete with each other. We could end up with a tighter and tighter oligopoly and more people out of work as financial jobs diminish. Of course, the companies took bad risks. The ones that can't survive without rescue are weakened. To admit to being weak is to lose faith and credit in the market, so they can't do that. As Lehman failed, the loans in which they borrowed became non-performing. They couldn't sell their mortgage backed securities, because no one trusts them. When Lehman could not make good on their obligations, the money markets started to fail ("break the buck"). So, if you had money in supposedly safe money market accounts, not only was your interest paltry, but your principal was at risk for the first time in decades. So, people started to pull money out of the money markets. This is a snowball effect. The cost of rescue goes up as confidence in counterparties goes down. If this rescue had been done a year ago, the cost might have been $50 Billion instead of $700 Billion and growing. Without confidence to lend to counterparties, the system falls and we return to a barter economy. Our velocity of money is much faster as a credit society than as a cash society. Higher velocity of money means more collective wealth and more exchanges of goods. One problem with a barter society is asymmetrical information. What can I get for my asset or service if I go to the next town? Credit allows much more portability of finances. We have a breakdown in our credit system. Even auto teller transactions require a credit relationship between financial institutions. Kiss those relationships goodbye, when confidence in the financial system fails.
Finally, can we allow McCain to slip out of his support for the bill? If he pursues this line of attack, how can we respond? The support of Barack Obama and Joe Biden means that the position of the Democratic Party is set for this round. The rescue plan is enacted.