Congress rejects the bailout

House nixes $700B bailout bill in stunning defeat. The vote was 228-205. (Voting no: 133 Republicans and 95 Democrats.) The stockmarket dropped 777 points. I’m impressed that Congress refused to be steamrolled.

(Here are the options the congressional leadership is considering.)

What would it look like if the free market just does its work?

About Gene Veith

Professor of Literature at Patrick Henry College, the Director of the Cranach Institute at Concordia Theological Seminary, a columnist for World Magazine and TableTalk, and the author of 18 books on different facets of Christianity & Culture.

  • Pingback: Bailout » Blog Archive » Congress Rejects the Bailout

  • http://necessaryroughness.org Dan at Necessary Roughness

    The funny thing about the market is, while there are general rules of thumb that work pretty well, the fact is that there are gobs of people making decisions, each with his/her set of incentives. How’s that for a disclaimer? :)

    1. Homes that didn’t fulfill their agreed to obligation to pay their mortgages would be foreclosed.

    2. This would flood the supply of homes to the market, which would drop prices further, which is just as well since we had that monster boom.

    3. Banks and investment companies would shy away from fancy ways of distributing risk, since such complications blurred their ability to assess the risk.

    4. Since the U.S. government isn’t going to print more money, inflation would drop, and the dollar would probably even appreciate a little bit, allowing for cheaper imports and better jobs.

  • Peter Leavitt

    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.

  • Peter Leavitt

    In the above the last sentence wa mine, not Dean Barnet. Excuse me.

  • Joe

    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.

  • Carl Vehse
  • Carl Vehse

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

  • http://www.bikebubba.blogspot.com Bike Bubba

    What would it look like if we let private markets fix things? 1907; sharp pain this year, OK next year. Far better to do this than to emulate what Hoover and Roosevelt did; relentless inflationary monetary policy and government intervention in the markets.

  • Peter Leavitt

    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.

  • WebMonk

    Peter, you’re probably right that many of the congressman who voted against it didn’t understand everything going on, but they still made the right choice. It’s the congressmen who voted for it who don’t understand what is going on with the financial crisis.

    When Paulson and Berenanke can’t make a convincing argument for the bailout, you know there’s something wrong with it.

  • Manxman

    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.

  • utahrainbow

    from #9
    “…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.”

    This is not how the U.S. works. We retain our identity as STATES united. Congressmen are there to represent their constituencies as well do their other constitutionally appointed tasks (ie purse strings, declaration of war). OUR constitution says nothing like, for example, “he is not a member of Maryland, but he is a member of Congress”. It is those elected reps that have forgotten where they are from that cause much mischief. They are only professional politicians, accountable to no one.

  • Carl Vehse

    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.”

  • http://www.bikebubba.blogspot.com Bike Bubba

    Regarding the wisdom of the bailout; Barney Frank, whose insistence on loose lending policies largely LED to the problem, was one of the chief proponents of the bailout.

    There are some great ways of renewing confidence in the system, starting with repealing the loose lending policies like the 1977 Community Reinvestment Act, as well as the 1990s era (Barney Frank inspired) regulations that required banks to accept welfare and unemployment checks as evidence of income.

    However, bailing out the banks is NOT one of the right solutions, as it’s exactly what was done by Hoover and FDR to make the Depression last until the rising sun flew over Oahu.

  • Peter Leavitt

    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 S

    Peter @ 3 & 4: It seems to me that you are drinking the Kool-Aid. First, it is not true that the House Republicans killed this bill. Actually, I think Pelosi wanted this bill to go down. She is known for her ruthlessness in whipping Democratic votes for her pet legislative projects, but she did not require Democrats to vote for this measure, which she asserted last Friday was critical to our national well being. She claimed that this needed to be a bipartisan measure, but then delivered a blisteringly partisan speech right before the vote was taken. She lost 95 of her own Democrats, when only 13 of those 95 votes would have passed the bill. Democrats control Congress, and it was their responsibility, not that of the minority party, to ensure that this bill was passed.

    Second, it is far from certain that this bill was necessary or in the country’s long term interests. Paulson was a demagogue when he originally called for the passage of this measure last week, claiming that the markets would melt down if it was not immediately passed. If such information is known by you to be true, the last thing you want to do is panic the markets and the public by making a big announcement that you expect the markets to melt if a certain action isn’t taken by X date. You go to leadership, quietly, give them the information that forms the basis for your conclusion of impending disaster, and try to get something done as quietly and quickly as possible. Thank goodness the American people weren’t prepared to be stampeded into something like this. Now, let’s take a more deliberative approach and figure out what we need to do that is consistent with free market principles

  • Peter Leavitt

    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.

  • http://www.toddstadler.com/ tODD

    Don, you really seem to be going out of your way to pin this only on Democrats. At times, you claimed to want a bipartisan solution, but at other times (like @16) you claim it was the Dems’ “responsibility” to pass a partisan bill, in spite of their stated desire to have bipartisan support.

    And when did the House Republicans become such weenies (as you apparently claim) that a partisan speech on the floor meant they would reject a bill? Were they voting on her speech, or on the content of the bill — or can they not tell the difference? Is that putting country first?

    No, the whole “Pelosi speech” thing is a red herring, and one of their own members (John Shadegg, R-AZ) has said as much:

    Scarborough: Did you vote against this bill because your feelings were hurt by Barney Frank, Nancy Pelosi, and members of the Democratic caucus?
    Shadegg: No, I didn’t, Joe, and I don’t know a single Republican who did. It was a stupid speech by her, but it didn’t move any votes. On an issue of this importance, nobody would be moved by that.
    Scarborough: Boehner said it moved votes. Was Boehner wrong?
    Shadegg: Yeah. I think their feelings were hurt, it was embarrassing for leadership of both parties to lose the bill, so they went out and made a stupid claim. But I don’t know a single person who changed their vote on the basis of that or would have. [1]

    There is also the question of why the RNC had produced and distributed ads criticizing the bailout before it had failed. [2]

    [1] “Shadegg: Pelosi’s Speech Had Nothing to Do With Bailout Defeat” by David Kurtz, TalkingPointsMemo.com, 9/30/08 12:17pm
    [2] “Country First, My A__” by John Cole, Balloon-Juice.com, 9/30/2008 11:00am

  • FW

    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.

  • Tim

    Anyone ever read The Creature From Jekyl Island?
    You should. The Federal Reserve is NOT Federal nor is it a reserve. We have been duped for almost 75 years.
    It is time to wake up! Austrian Economics is a good start..Von Misis institute.

  • Don S

    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.

  • Don S

    tODD @ 18: No, I’m not at all trying to pin this all on Democrats. I am refuting the naked electioneering being done by Democrats and the media to pin this all on Republicans. There is blame enough to go around and to pin it all on the minority party in a house where majority absolutely rules, and where the minority party gave the majority party 65 votes to work with is a joke. I pin a lot of blame on Pelosi because she is a joke. I also pinned a lot of blame on the administration, and particularly Paulson, if you re-read my post above, more carefully. He is a Republican last I checked. Let me help you by re-quoting the pertinent part of my post: “Paulson was a demagogue when he originally called for the passage of this measure last week, claiming that the markets would melt down if it was not immediately passed. If such information is known by you to be true, the last thing you want to do is panic the markets and the public by making a big announcement that you expect the markets to melt if a certain action isn’t taken by X date. You go to leadership, quietly, give them the information that forms the basis for your conclusion of impending disaster, and try to get something done as quietly and quickly as possible. Thank goodness the American people weren’t prepared to be stampeded into something like this.”

    I don’t think the House Republicans voted against this because of Pelosi’s speech. I think they did because they didn’t trust Democratic leadership. I think they thought they were being set up by leadership for campaign ads later on, given the unpopularity of this measure with the public. When they saw leadership demanding that they vote for the bill (“country first”), but leadership’s friends and vulnerable freshman getting a free pass to vote no, their radar went on. Why wasn’t leadership whipping their own members to vote for this? Why were they specifically authorizing members to vote no? It didn’t add up, especially given the demogoguerie that had been going on all weekend.

  • Anon

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

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

  • Anon

    Which is not inconsistent with the Cloward-Piven strategy that Obama is well aware of and indoctrinated in.

    http://www.discoverthenetworks.org/groupProfile.asp?grpid=6967

    Correlation does not in and of itself prove causation, but it can suggest an avenue of research. We have motive, means and opportunity, which works in our legal system but does not meet God’s standard of evidence.

  • Anon

    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.

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