The Congressman's Dilemma

So in light of the news of House Republicans loudly and suddenly bailing out on the bailout, a few things to keep in mind to make sense of the political terrain.

1) The bailout is unpopular: The polling on this is muddled, but the polling is completely dependent on the wording. Every single lawmaker is getting barraged with hundreds of calls a day from constituents, and no one is saying: "Please give lots of money to Wall Street!"

2) The crisis is terrifying to lawmakers: They're getting insanely heavy pressure from the vulturous Wall St lobbyists buzzing around the Hill ("there's a gazillion of 'em!" a staffer told me earlier in the week) and also, dire and sober warnings from Bernanke and Paulson behind closed doors. Basically, if you don't pass this, they're being told, you'll have the blood of another Great Depression on your hands.

3) Ergo: The optimal outcome for all lawmkers is to vote against the bill and still have it pass. That way you get to have your cake and eat it, too. But what we're dealing with is something akin to a massive prisoner's dilemma. Everyone wants to get into the decision quadrant of voting against the bill and having it pass, but of course if everyone rushes for that quadrant, then the bill doesn't pass and therefore, no one ends up in that quadrant. If you're Pelosi and the Democrats you can't allow the Republican wingnuts off the hook by creating the space for them to crowd into the sweet spot, and then use the bill to run against you. That's why things are so tenuous and difficult to game out.

Everybody's gotta jump together.

Comments (24)

1. I can't believe Obama's supporters are going to let Bush spend the Obama administration's future!

   One trillion people!

   Wake up!

   Remember WMD?

   We gotta this, we gotta that, we have to act NOW! Blah, blah, blah!!

   Posted by bleedingheart at 09/26/2008 @ 12:35pm

2. The lawmakers should be TERRIFIED of the wrath of the people if they botch this up. It would be the first in my lifetime. I just wonder why it's taken so long for patriots to take to the streets???

   Posted by EllenBrown at 09/26/2008 @ 12:54pm

3. Scary, but fascinating conundrum now-

   Here you have Congressional Repubs, who went along with EVERYTHING Bush ever wanted....now telling him to go to Hell and telling WALL STREET to go to Hell...

   so they can vote against a bill....and run on voting against a bill...

   that they secretly want to pass because they get their bucks from Wall Street and their base still loves George W. Bush!

   Mr Hayes is right...it is a logic puzzle!

   Posted by Maskdelta at 09/26/2008 @ 1:00pm

4. FACTS/TRUTH '08

   Posted by frosty zoom at 09/26/2008 @ 1:07pm

5. >>>If you're Pelosi and the Democrats you can't allow the Republican wingnuts off the hook by creating the space for them to crowd into the sweet spot, and then use the bill to run against you. That's why things are so tenuous and difficult to game out.<<<

   The key is to NOT BLINK

   If the Repubs want to balk in their support, then don't pass anything.

   The clock is ticking AGAINST THEM and "particular" banks whose backs are against the wall.

   The question of who got us into this mess and who is preventing us from getting out of it will rest squarely on the Republicans, leading to landslide victories for Democrats in November.

   What is really surprising in all of this is the Fed Reserve Chairman's unwillingness to view this like a 9/11 emergency WITH HIS ACTIONS by lowering the discount rate to zero like what occurred after 9/11.

   All Democrats should take notice of this lack of "action" of Bernake and question his competence or credibility concerning the seriousness of the financial crisis.

   Posted by Metteyya at 09/26/2008 @ 1:07pm

6. in fact,

   no bill passed will be understood to be good to the public at large.

   but a bill will be passed.

   every republican in congress can vote against it, and it will pass :≠/

   and people will see that.

   no connections to the past.

   just that.

   these fine gentlemen (and lady) stood up for our rights!

   the dumbocrats do the necessary evil to keep the tugboat afloat and look like jerks.

   it's well planned and i'm sure it has the white house's blessing.

   legacy, schmegacy. busy-ness is busy-ness; money's not talking, it's walking.

   Posted by frosty zoom at 09/26/2008 @ 1:14pm

7. Posted by EllenBrown at 09/26/2008 @ 12:54pm

   What exactly makes you think that anyone is TERRIFIED of the American population? Many Americans don't even know how to say, "No" anymore - much less do some kind of action like the Founding Fathers or even a country wide rescue a la the Jewish population in Denmark in 1943.

   The latter example is a great one of the power that rests outside of electoral politics, Mask. Unfortunately, we have little hope of that in our country these days.

   Posted by srjenkins at 09/26/2008 @ 1:22pm

8. This just illustrates that Pelosi, Bush, Reid, et.al have more in common with one another than the middle class.

   They're just covering the rich's mistakes.

   S&L, LTCM, same old $hit.

   And this blind rag starts from the "it's all the GOP's fault" with everything.

   It's a freakin' Ponzi scheme! Get those dumbasses in the middle class to do the foot work and the rich will reap the benefits. And when it goes to hell? Just pile more debt on the working class.

   Hank Paulson was paid 37 million in 2005 as CEO of Goldman-Sachs!

   Posted by bleedingheart at 09/26/2008 @ 1:26pm

9. Depression? Bring it on. We'll have the capitalists heads on spikes. And can finally put U.S. imperialism to bed.

   Posted by ElyDog at 09/26/2008 @ 1:30pm

10. The Democrats should tell Bush and Paulson to get their GOP sheep 100% behind any bill, that if so much as a single Republican votes No, that the Democrats will all vote No (or abstain). Call the Republicans first by voice vote. Make no mistake - the economic collapse, like the occupation in Iraq, is 100% Republican in origin. Time to make them pay for it.

    Posted by jmusolino at 09/26/2008 @ 1:30pm

11. Get those dumbasses in the middle class to do the foot work and the rich will reap the benefits. And when it goes to hell? Just pile more debt on the working class.

    Posted by bleedingheart at 09/26/2008 @ 1:26pm

    actually, the middle class'(s) work is almost finished.

    inflation has pushed their employment to faraway lands.

    Posted by frosty zoom at 09/26/2008 @ 1:30pm

12. Excellent post, Chris.

    We're witnessing some momentous history. Let's hope it's a more beneficial juncture than a continuance of business as usual --which is more or less what Barack Obama has thus far signaled himself to represent (i.e. "a 'responsible' leader.)

    Here is a brief post from Counterpunch today that injects some common sense into the discussion:

    Bailing Out Wall Street Won't Save Main Street By MOSHE ADLER

    Wall Street must be saved for the sake of Main Street, Secretary Paulson and Chairman Bernanke tell us. First, everyone has toxic financial instruments in their 401k's; and second, these instruments are clogging the credit system. But in fact neither claim is true.

    The first claim is not true simply because the majority of Americans don't have any retirement accounts at all. And the claim that the credit system is clogged is not true because there is no object that can be removed in order to clear it. What is true is that the securities that Wall Street invented are toxic. But this is precisely why they should remain where they belong, in the vaults of those who created and pushed them. Otherwise they will poison the rest of us, the poorest among us the most. The government can and should stave off the increase in unemployment, but the only way the government can accomplish this is by hiring workers itself. A bailout will make matters worse.

    If it were indeed true that all Americans owned these new financial instruments, then the decline, or even the total collapse, of their value, would actually not have made a difference to anybody. When the value of everybody's assets falls by the same proportion, nobody gains and nobody loses, because monetary wealth is only relative. Thus, if Wall Street and Main Street were really the same,

    Posted by b_kool_66 at 09/26/2008 @ 1:40pm

13. there would have been no economic crisis to begin with. But the fact is, only 53% of full-time full-year workers participate in a retirement plan, and for Americans who are only part-timers or temporary workers the proportion is even lower. The majority of Americans will therefore not benefit from the bailout at all. But will they be hurt by it? Badly.

    If Wall Street fortunes were to evaporate, the result would be a major realignment of wealth in the country. The rich would become poorer, and as a result the poor would become richer. The very first thing a bailout will do is prevent this realignment from taking place. The rich will continue to have their jets and their palaces and the poor will continue to struggle to go to the doctor and to find housing. Heads, the rich win. Tails? Let's toss again.

    There is no doubt that economic uncertainty leads to low investments and low borrowing. There is also no doubt that mortgage-based-securities are partially responsible for this uncertainty, although the rising price of oil plays an important role as well. But, as Keynes pointed out during the Great Depression, nobody knows how to restore lenders and investors? confidence once it has been lost. And, in all likelihood, passing the mortgage backed security to the government will decrease, not increase, this confidence.

    If the government acquires these securities, it will be left to a government employee (or, more likely, to a private contractor) to decide when ?the price is right? to sell them. But the volume of these securities is fantastically large, and nobody knows how to price them anyway. The effect on financial markets will be colossal. Business schools will start teaching new courses devoted to predicting the behavior of this bureaucrat.

    Posted by b_kool_66 at 09/26/2008 @ 1:40pm

14. New financial instruments will be invented to take advantage of this new "expertise." The government employee herself will either succumb, or be accused of succumbing, to an overwhelming temptation to sell the old-new securities for prices that will benefit those closest to her. The calls to regulate the new-new securities and to monitor the government employee in charge of selling the old-new securities will be deafening. The level of economic uncertainty will increase many times over, and unemployment will increase along with it.

    What Keynes also pointed out during the Great Depression is that the government can increase employment by hiring workers itself. To press his argument Keynes suggested that the government could always hire half the unemployed to dig ditches and the other half to fill them up. But thanks to long years of neglect by the government, there are many government services that Main Street actually desperately needs: More teachers and better school lunches; more public transportation; more public universities with better facilities; more nurses and doctors and more medicinal drugs; more nursing homes for elderly people and more parks for the young; more housing for workers and more childcare for their children. And, Keynes explained, once the government starts using its power to stabilize employment and to increase its citizens? standard of living, there is no doubt that the economic horizon will clear and private lending and investment will rebound as well.

    Normally, this would be the point at which the reader would ask: "But how do we pay for this all?" But not today. First, the government can use the money that the President and Congress want to give Wall Street. In addition, it is now clear that executive compensation is not a just reward.

    Posted by b_kool_66 at 09/26/2008 @ 1:40pm

15. It can and should be taxed, heavily, and perhaps even retroactively.

    Trickle down solutions to free market problems have had more than a fair chance. The only way that the government can perform its job is to work for Main Street directly.

    Moshe Adler is the director of Public Interest Economics, a consulting firm. He can be reached at ma82092@gmail.com.

    Posted by b_kool_66 at 09/26/2008 @ 1:40pm

16. yeah - its a real double bind hell. they do have to do something though...

    regardless...

    WELCOME! THE DYSTOPIC FUTURE IS NOW!!!!

    Posted by dexter666 at 09/26/2008 @ 2:00pm

17. Dear Christopher Hayes and Posters:

    This is the first time that I have posted on any blog, political or otherwise. Since I could vote, I have been a registered Democrat, a moderate, though a one time voter for Ralph Nader.

    I am seriously considering changing my registration to Independent at the unseemly haste with which the Democrats (Pelosi, Reid, Dodd, Frank) are pushing this legislation without adequate hearings. Could it be that these elected officials are unaware of how obvious they are and how discreditable it appears to those of us outside the Beltway? This procedural issue is at the heart of good government. Bloggers, if you agree, could you please inform Mr. Hayes and the writers for this journal? And Mr. Hayes, if you agree please use your contacts in Congress and the media to let them know how they are harming the country and their party.

    The Washington Post carries an article today noting how academic economists of both the left and right (i.e. those not affiliated with financial institutions) are dubious about the merits of the proposal and about the need for haste. These economists should be called to testify, much as academics testified during the impeachment process of Clinton and during the rush to the Iraq War. I am sure that Henry Paulson, as a successful trader, knows a few things that the academics do not know. But the reverse is true as well.

    I realize that the etiquette of these blogs is to post and then to reply to the replies, if any. Please forgive me if I do not do so. I am uncomfortable with this kind of online political dialogue. However, I have read and benefitted from the discourse on these blogs over the last few years. Thank you. Sincerely yours,

    Posted by diegobenardete at 09/26/2008 @ 2:17pm

18. Remember "Support Our Troops" on the war in Iraq. hahahah......I am sure they will come up with something. Both parties must simultaneously take the credit and the blame. Lobbyists will win, we will lose.

    Posted by OneVote at 09/26/2008 @ 2:20pm

19. We should have a two-step plan here.

    Step one--short-term stabilization of finance markets: We buy up troubled assets for an equity share, paying for the purchase by taxing incomes over one million dollars per year.

    Step two--use the government stake to fund government infrastructure investment projects. If assets can be sold at a profit that money goes into an infrastructure investment fund. If a profit isn't possible, the equity stake that we get instead can be used to direct the relevant institutions to invest private capital in the same projects. Or, the government can sell back that equity stake and put the proceeds into the investment fund.

    The goal is to transform the billions of dollars of bad loans into billions of dollars for investment. The larger the failures in the financial markets, the greater the government share and the greater the size of the fund.

    Use the fund to fix broken highways and bridges, build a new generation of rail service at every scale, invest in renewable energy technologies, build a competitive national broadband network, and put people to work in this country building all of that to hold off any potential slide to unemployment.

    Posted by llachglin at 09/26/2008 @ 2:49pm

20. We should have a two-step plan here.

    Step one--short-term stabilization of finance markets: We buy up troubled assets for an equity share, paying for the purchase by taxing incomes over one million dollars per year.

    Step two--use the government stake to fund government infrastructure investment projects. If assets can be sold at a profit that money goes into an infrastructure investment fund. If a profit isn't possible, the equity stake that we get instead can be used to direct the relevant institutions to invest private capital in the same projects. Or, the government can sell back that equity stake and put the proceeds into the investment fund.

    The goal is to transform the billions of dollars of bad loans into billions of dollars for investment. The larger the failures in the financial markets, the greater the government share and the greater the size of the fund.

    Use the fund to fix broken highways and bridges, build a new generation of rail service at every scale, invest in renewable energy technologies, build a competitive national broadband network, and put people to work in this country building all of that to hold off any potential slide to unemployment.

    Posted by llachglin at 09/26/2008 @ 2:49pm

21. What happened to

    "The fundamentals of our economy are strong"?

    Both bush and McCain made this claim but weeks ago.

    con apologists... what's up with this? and Darin, if the buyout is such a good "investment" for the taxpayer, why isn't the "market" stepping up to get in on this sure thing? 3rd time to ask...

    Posted by crabwalk at 09/26/2008 @ 2:52pm

22. Fiscal conservatives are dead set against it, and Republican members of Congress are hearing from their constituents. In deed , I think every member of the House and Senate are catching hell on this one. I don't think this bail out will work, because the Real Economy is unsound. When, through "Free Trade", you take away the earning power of the American worker, you destroy the American market which he or she supports with their spending. This Aspect of Free Trade is going on all over the world. We are eventually going to have a world wide depression.

    Posted by P. J. Casey at 09/26/2008 @ 3:08pm

23. "And the claim that the credit system is clogged is not true because there is no object that can be removed in order to clear it. What is true is that the securities that Wall Street invented are toxic. But this is precisely why they should remain where they belong, in the vaults of those who created and pushed them."

    BKool, that statement overlooks the accounting problems caused by presence of the toxic securities on their books. Their ability to have money outstanding on loans is dependent on the capital they actually have on hand (the limit being a multiple of that capital). As long as they have the securities, they have to mark the lost value of that on their books and set it against their capital on hand. That reduced the amount of money they can mark themselves as having and thus reduced available credit.

    Further, as long as these are out there, the level of risk of further busts is somewhat undercertain. One of the nastiest problems with all this securitized debt is that is has been so sliced and diced that no one can be sure where the risk lies, thus making lenders more reluctant.

    The government purchase creates a minimum price for those securities, essentially giving taxpayers money to their holders. My main concern is that such action must also include the government obtaining equity when they make these purchases, so that they can have that to offset the securities in the event that Paulson's optimism about the ability to sell them at a favorable price in future is unjustified.

    Posted by brunowe at 09/26/2008 @ 3:56pm

24. Further measures should be in this package to further put more of the loss on the shareholders and the corporate management. Limitations on management pay, minimal or no dividends for a period of time. Further issues of stock to raise capital (which will have the effect of diminishing the value of the holdings of the existing shareholders but also upping the amount of money the bank can lend out).

    Posted by brunowe at 09/26/2008 @ 3:59pm