Urgent efforts to lash together a $700 billion rescue plan for the national economy broke apart Thursday night, hours after key lawmakers had declared they had reached a deal.I suspect the fact that the Democrats decided to throw everything and the kitchen sink into the bailout might have something to do with the deal blowup. Hugh has much more on that, and what to expect.
Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke sped to Capitol Hill to try to revive or rework the proposal that the administration says must be quickly approved by Congress to stave off economic disaster.
Congressional leaders were to meet with the economic chiefs into the night.
At the moment it appears that there's no deal, but plenty of finger pointing. Finger pointing works great for politics, but not so well when the entire US financial market teeters on the brink with every word. If you think the markets reacted wildly when Alan Greenspan sneezed, let alone gave his cryptic speeches as Fed Chairman, you haven't seen anything yet. Various pundits, reporters, business executives, financial leaders, and even the President are laying out the consequences of a failure to act as nothing short of disastrous.
So, while this disaster started with Congressional action in forcing lenders to give borrowers incapable of repaying loans money under the rubric of affordable housing, we're limited to what Congress is willing to do to fix it. For now, we're stuck with finger pointing. Rep. Barney Frank (D-MA), whose shenanigans helped chart the course to sub prime disaster and is neck deep in this crisis, pointed fingers at McCain. That's right.
McCain, who tried to change regulations at Freddie and Fannie to make them more accountable and open up the books to auditors, was thwarted by Congressional Democrats because it would put an end to the affordable housing dreams they had.
Democrats are also trying to blame Sen. John McCain for the failure of the deal, though one has to wonder how exactly McCain did anything of import here when he simply provided several concerns that the conservatives in the House GOP had. He raised the idea of an insurance fund along with capital gains tax cuts, which was summarily rejected by Paulson.
Noticeably absent from the discussions and reporting on the White House meeting, even though he was at these talks, was Sen. Barack Obama. How come he doesn't have anything useful to add to the discussion - whether it be an actual alternative plan, comments on the deal before it blew up, or anything else. He's just present. Apparently, he's too concerned with campaigning to put any effort into actually working his day job - as US Senator and as a leader of the Democratic party (as its standard bearer in the 2008 election).
In any event, I'm cautious about the idea of the bailout, what it means, and whether it is warranted. Alarm bells go off when I hear about the government buying up all these assets, as though they've done wonders with what they've been entrusted with to this point (how's that Amtrak business doing for example).
Still, the choice may be badly run business or no business at all because the markets are literally stuck. And that means that while a bailout may be a bad option, it's still the best of all bad options.
The clock is ticking because perceptions of bad things are just as real as the bad things themselves. Everyone knows that the toxic paper is out there and its gumming up the works, but no one really knows how much time these companies have to unwind and figure out the problem.
If the markets think that the financial markets are going to fall out completely, they're going to make business decisions based on that possibility - and take positions in the market correspondingly - defensive ones that seek to limit exposure elsewhere, further tightening the credit markets.
If the markets think that there's a chance for a bailout and guarantors for the toxic paper to ease the markets into safer water, they're going to exhale and tread water, all while letting the credit markets ease maintaining liquidity in the market.
What happens in the markets is now dependent on what Congress does or does not do. If they act decisively, the markets will respond. If they dither, they'll head for the exits.
UPDATE:
Just how cozy is Rep. Frank to Fannie Mae? Uncomfortably cozy. Hot Air has more details on the situation and is keeping close tabs on breaking news.
UPDATE:
It's breaking that JPMorganChase is moving to acquire Washington Mutual (WaMu).
The Wall Street Journal, citing people familiar with the matter, said the deal brokered by the government will not impact the FDIC insurance fund, which stood to take a multi-billion dollar hit if the WaMu failed.WaMu has been seen as an unstable banking business because of the subprime mess. So much for being a different kind of bank. It's simply a bank that made more of the bad loans than other large financial institutions.
The New York Times had a similar report. The Seattle-based thrift, the nation's largest, has roughly $310 billion in assets and was searching for a lifeline after a credit-rating downgrade further raised questions about its future.
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