Congress rejects the bailout

Free markets normally function fine within the linits of reasobnable regulation. The idea of absolutely free markets is a libetarian stupidity based partly on the liberal Protestant fantasy of the goodness of man let alone with the leftist fantasy of some sort of utopia.

The history of free economies in the West includes from time to time manias, panics and crashes that necessarily requirement government intervention.

Unfortunately the Republicans in the house yesterday made a disastrous mistake as Dean Barnet in a Weekly Standard piece, State of Play
Whither the bailout?

SO HERE’S THE state of play as the Great Depression redux edges ominously closer. The Paulson Plan failed today, with a solid majority of Republicans voting against it. The opposition Republicans fall into two camps:

1) The Mike Pence doctrinaires who welcome a free market curative like a Depression for our current woes. I guess they view it as sort of the economic equivalent of that stuff you drink the night before a colonoscopy. As misguided as Pence and his minions are, they at least have a certain nobility complementing their foolishness. I would be remiss if I didn’t note that a significant subdivision of the Pence camp rejects the counsel of virtually everyone who knows anything about economics and instead believes that our current situation isn’t so dire. Call it conservative magical thinking.

2) A bunch of other Republicans who would have voted for the Paulson Plan had Nancy Pelosi not said some stuff that hurt their feelings just prior to the roll call. They had thought passing the Paulson Plan was an urgent national priority. Then, the Speaker said some stuff that made personal pique take priority. Outdumbing the Pence Republicans was a tall task–this coterie of GOP representatives was up to the task.

Thusly does Congress live up to its 10% approval rating.

So what all the Democrats who voted against it get a pass? Remember if Mrs. Pelosi had control of her own party this thing would have passed and we be talking about the Senate right now. Anyone who can count can understand that.

And again the Republicans who voted against his bill proposed an alternative plan and proposed changes to the current plan. They did not do nothing.

Nancy Pelosi Bailout Bill Failure: A Tale of Two Times presents the NY Times and the UK Times versions of the Pelosi bailout episode.

Peter Robinson over at NRO gives us an Edmund Burke quote from one of his readers:

Your representative owes you, not his industry only, but his judgment; and he betrays, instead of serving you, if he sacrifices it to your opinion….

To deliver an opinion, is the right of all men; that of constituents is a weighty and respectable opinion, which a representative ought always to rejoice to hear; and which he ought always most seriously to consider. But authoritative instructions; mandates issued, which the member is bound blindly and implicitly to obey, to vote, and to argue for, though contrary to the clearest conviction of his judgment and conscience,—these are things utterly unknown to the laws of this land, and which arise from a fundamental mistake of the whole order and tenor of our constitution.

Parliament is not a congress of ambassadors from different and hostile interests; which interests each must maintain, as an agent and advocate, against other agents and advocates; but parliament is a deliberative assembly of one nation, with one interest, that of the whole; where, not local purposes, not local prejudices, ought to guide, but the general good, resulting from the general reason of the whole. You choose a member indeed; but when you have chosen him, he is not member of Bristol, but he is a member of parliament.

Im my view most Congressmen who voted against this financial rescue plan either don’t understand the depth of this financial crisis or were cowed by the overwhelming sentiment of their constituents, most of whom are clueless as to the consequences of a serious credit meltdown.

Peter,

The Reps. who voted against this mess may have more on the ball than you give them credit for. Here’s part of an interview with Michigan Republican Rep. Thaddeus McCotter –

Speaking of what the American people will accept, I took a poll of my readers and the Right Wing News took a poll of its readers. Only 15 percent of the Right Wing News readers supported the bailout, and only about one percent of my readers did. Are the administration and the other members of Congress who supported the bill unaware of the strength of public opposition to the plan or do they just not care?

I’ll let them speak for themselves, but I think that what you’re finding is the same thing other members of Congress are finding. First, there’s an argument that the American people don’t seem to understand what is happening if this bill failed. I think the opposite is true. The American people, from the MINUTE this Paulson bailout was announced, understood what it meant and they decided they did not like it. What happened was an arrogant administration forced it upon Congress and finally, finally, thanks to the U.S. House, the people’s voice was heard and obeyed. Now we can finally get down to the serious business of doing what is in the best interests of the American people.

What basic economic theory is operative in Congress right now?

Right now, the only thing that was operative, that was put in front of us, was Paulson’s plan, which was to buy those toxic assets at public expense. There are several other models out there that other nations have used far more often and far more successfully than the flawed model Paulson put in there for the Wall Street bailout. What we want is something that will spur private recapitalization so the money comes in off the sidelines where it’s parked, and also provides an appropriate government backstop that is necessary and just for the American people’s economic prosperity. Those are the two fundamental principles. As you can see, private recapitalization and appropriate government backstop that is just and fair to Americans, is an entirely different path than the one taken by Paulson with his first, only, last resort of a public bailout of Wall Street.

Conventional Keynesian theory, to which I do not subscribe–

Nor do I!

One of my readers went to high school with you. He told me that you’re Austrian-aware.

Roepke, I’m more of a Roepke guy. I don’t go as far as Von Mises. A humane economy, not an insane economy.

Fair enough. But the basic Keynesian model states that savings equals investment and there hasn’t been much savings in the American economy because interest rates have been so low for so long. Where is this private capitalization supposed to come from with artificially suppressed interest rates that in real terms may actually be negative?

I would actually go one step further because I think you’re getting very close to the same position I’m at. Savings are deferred consumption channeled into investment. What happens under the despicable Keynesian model, the disastrous Keynesian model, is this – savings start to reduce. And what the government does then is to pump expanded credit into the system. It creates investment inflation. This is exactly where we are and it’s called a bubble. And the market has endeavored, as it always does, to correct that investment inflation, so Mr. Paulson and Mr. Bernanke wanted the taxpayers to inject $700 billion to keep the bubble inflated! And it’s not going to work!

What you have to do is get the private money to come in and look at the assets, start to clear that out through proper legislation to incentivize it, and then get an appropriate government backstop. Now, in the long term picture, it is all about reincentivizing American savings to increase that pool of capital here. It is also about attracting American capital that is parked offshore back for repatriation; the last time we did it there was over $300 billion that came back into the American economy. Benedict Arnold, as the Democrats have put it, Benedict Arnold cleaning up Wall Street. And then what you can also do is incentivize PRIVATE foreign investment to come back into the United States through appropriate legislation.

As opposed to the sovereign funds they’re currently relying on.

Right, the sovereign wealth funds I oppose. They’re government-run, and when the government of any nation, especially nations that are antithetical to the interests of the United States such as Communist China, when they come in and buy a private asset, it’s been nationalized. It’s been socialized! And when socialism is imported into the United States economy, the free market gets smaller and everyone’s liberty and prosperity is imperiled.

Concerning the $700B figure for the bailout, from a Forbes report of Sept. 23:

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number.”

The more information that slowly is leaking out about this bailout, as a punishment, tarring and feathering is starting to look less and less like it would be “cruel and unusual.”

utahrainbow, members of Congress are perfectly similar to members of Parliament in that they are elected to serve the best interests of their constituents on national issues. Congressmen, as Burke remarks about Parlamentarians, are called on not to represent the assorted views of their constituents but to weigh issues clearly in terms of the nation’s best interests, which in the long run is beneficial for people in the states. When Congress voted on the financial rescue plan yesterday, members voted on a grave national issue. The wiser and more courageous of them in my view, given the depth of the financial crisis along with the financial savvy of Paulson, voted for the plan. The difference is essentially between a local political hack and a statesman.

Sen. McCain in not voting for Arizona earmarks is a statesman on the issue. Sen. Obama who has pleased many of his local constituents with $932 millions of earmarks is a political hack on the issue.

The superlative example of an American statesman was Pres. Lincoln who saved the Union and ultimately liberated the slaves in the face of furious opposition in parts of the North as well as the South. In the long run Pres. Bush bids fair to be viewed as a statesman for his effforts to lower taxes and liberate Iraq in the face of furious political opposition. Pres. Triman would be another example.

Don, I agree that Speaker Pelosi was devious yesterday. I’ve read that she allowed about sixteen first-term Dems from shaky districts to vote against the bill. Nevertheless, about two-thirds of the Repbublicans voted against the bill compared to forty per cent of the Democrats.

Last and this week Paulson told the truth that the credit markets had dangerously seized up. Anyone familiar with credit market numbers were well aware of thiis. Both Sec. Paulson and Chairman Bernanke are very smart and knowledgeablw on financial economics; their plan was carefully crafted and properly modified by the Congress. Unfortunately, the plan is being second guessed, manly by libertarian economists along with media and political types with scant understanding of the depth and nature of this financial crisis.

I’ve been a student and practitioner in finance for many years and don’t drink anyone’s Kool Aid. The real Kool Aid that is being drunk has to do with the assorted conspiracy theories about this crisis that, as Brooks remarked, is based on a naive nihilism.

Dean Burnet has some salient remarks on this:

Here’s what’s been lost in the debate while people on both the right and left have offered ignorant jeremiads about “bailing out Wall Street.” If the economy tilts into a deep recession or even a depression, it’s not the wealthy or even Barack Obama’s cherished middle class who will pay the deepest price. In any such circumstance, it’s the people on the economic margins who get hurt the most. The ones without a nest-egg and without a 401(k) are the ones who have no safety net when they lose their jobs and health insurance. If unemployment goes from 6 percent to 10 percent, it won’t be the investment bankers who start heating their homes at 56 degrees in January. Populist rhetoric is almost always misguided. That has never been more the case than over the past week.

actually he explanation of who voted against the
bailout seems to be that congressmen up for reelection, both democrat and republican almost 100% voted against the bill.

Peter @ 17: Fair enough. I respect Dean Barnett and I respect the opinions of those who believe this bail-out (now “rescue plan”) is vital to the health of the American economy. I just don’t like the way it’s been approached, nor the way that it has been demagogued by either party. We’re being put into a position of “Trust us, we’re the government”, and as a conservative free marketeer with libertarian leanings, I don’t like it.

There is an interesting Soros connection to Wachovia’s failure.

http://www.americanthinker.com/2008/09/how_allies_of_george_soros_hel.html

And now they’ve approved it, now that it is full of nearly 400 pages of pork and earmarks, the same 700 billion dollar bill as before, but apparently with more sent to pay back voters. Such as the line giving tax breaks to manufacturers of wooden arrows for children.