Folks, the "Wall Street bailout" (it's really a Main Street buy-in) is going to pass Congress, and for good reasons. As Nate Silver explains, voters do support this bill, depending on how the question is framed by the pollsters. Most voters don't understand the underlying problem, or how the bill hopes to fix it, so they naturally cringe at the words "$700 billion" and "Wall Street bailout" in the same sentence. We need to make sure voters don't have to rely on pollsters to explain the problem.
Because Senator Obama will end up "owning" this bill. We need to help him, by understanding it and being able to explain it to our colleagues and friends.
More below the fold....
I'm not an economist, but I'd like to think I understand the basics of this problem and the proposed bill. So herewith a quick primer on how to explain Sentor Obama's support of what I'll call The 2008 Job Security Plan:
- This is about your job, not Wall Street. If you work for anything larger than the tiniest mom'n'pop, your employer has a revolving credit account, a "revolver." For a small business, that may be just a business credit card. For a medium or larger business, it's a line of credit at a major bank ... the banks that are in trouble because of the toxic mortgages and mortgage-related securities.
- That revolver works just like your credit card, used wisely. If you use your credit card wisely, you use it to pay for unexpected but necessary expenses that happen between paychecks, or to spread out large expenses you could not afford on a single paycheck. That's exactly how your employer uses his business revolver. Customers don't rush in to buy stuff when your employer's bills come due. They buy stuff when they need it. And maybe they're late paying. Or maybe your business is seasonal (retail, farming, new construction are examples), or your business relies on a handful of big orders each year. But your boss has to pay his bills on time - including your paycheck - or go out of business.
- If your employer can't pay his monthly bills, you're out of a job. It's just that simple.
- Revolvers are funded by commercial bonds. The banks don't pull money out of thin air to fund business revolvers. They issue commercial bonds, for an individual business (if it's big enough) or for a group of businesses (grouped by type and/or credit rating). Investors buy those bonds, and that money funds the businesses' revolving credit accounts. If investors stop buying those bonds, the revolvers run dry and must be shut down.
- Investors buy bonds based on trust. First, the investor must trust the business to be funded, say, your employer. But the investor must also trust the bank issuing the bond. If the investor fears that bank may go belly up before the bond matures, he won't buy the bond, even if he believes the business is trustworthy.
- In mid-September, the commercial bond market started to drop sharply. Look here and scroll down to the corporate sections. See the big red bars? That means investors are skittish about buying corporate bonds, not because the investors think those businesses are a bad risk, but because they're wary of the banks that issue those bonds.
- Yes, it's the banks' own fault. Those banks created and sold too much "junk," gambling and speculating with not enough assets or real productivity to back up that "junk." But if we just "let those fuckers fail," they take those business revolvers and your job down with them.
- Bush will not get a $700 billion, no-strings-attached slush fund. The proposed bill bill parses out the money, with $250 billion available immediately and an additional $100 billion upon certification of need by the President. Congress can cut off funding if they don't feel it's necessary, or if they don't feel it has been or is being spent wisely.
- This is a buy-in, not a bail-out. You, through the U.S. government, will become a part owner of these major banks. If markets stabilize and the banks start making money, the government will get our money back as a share of those profits.
- There will be tighter regulation, help for needy homeowners, and no "golden parachutes" for guilty bankers. The bill is not perfect, but it tries to fix the broken regulations that let banks create this mess, helps for homeowners who can't pay skyrocketing home mortgage interest, and caps executive pay so the irresponsible gamblers who created this mess can't float away on golden parachutes of your money.
No, this bill is not perfect. But it's not the sellout you've been warned about either. It's a short-term attempt to fix an immediate problem: the falling corporate bond market that's making it so difficult for your boss to use his revolving credit account.
And if he can't use that, you lose your job.
That's why Senator Obama, Speaker Pelosi, Majority Leader Ried, and most other Democrats in Congress are getting involved. Not to bail out Wall Street, but to make sure your boss can afford to pay you.
If we Kossaks can focus on these points when we're talking to colleagues and friends about the Job Security Plan, if we can educate them about why it's necessary and what it tries to do, then Democrats' support of this plan should not be a political albatross. Voters are willing to support it when it's explained correctly by pollsters. We need to make sure they aren't relying on the pollsters to explain it correctly.