September 30th, 2008
05:31 PM ET

Those whom the gods would destroy, they first make mad

[cnn-photo-caption image=http://i2.cdn.turner.com/cnn/2008/images/09/30/art.congress.jpg]
Willem Butler
Maverecon blog, FT.com

The US House of Representatives has voted to reject the Emergency Economic Stabilization Act – the $700bn Treasury-funded facility for purchasing and managing toxic assets held by the US banking system.

Opposition to the proposal came from two different sources. A few remaining libertarians and believers in unfettered free enterprise voted against. Even when they recognise the risk that a calamitous collapse in economic activity may result, they view this as a form of creative destruction that is an integral part of a Darwinian market economy. I don’t know anything about Gresham Barrett, a Republican congressman from South Carolina but his statement fits the bill: “My fear is the government will be forever changing the face of the American free market. Because I believe so strongly in the principles of the free market and the belief in freedom, I will be opposing this bill.” Those who genuinely hold these views are mad, but honest and principled. I wish them a good depression.

A larger body of nay-voters consists of populist rabble-rousers or, worse, politicians who know better but follow the whims, fancies and passions of their constituents, even when this means that before long the real economy risks falling off a cliff. The following statement by Ted Poe, a Texan Republican member of Congress is a nice example: “New York City fatcats expect Joe Sixpack to buck up and pay for all of this nonsense,”… “Putting a financial gun to the head of every American is not the answer.”

The dedicated followers of constituency fashion reckon that the date of the election is likely to be before the full impact of the financial collapse made likely by this vote will hit their constituents’ jobs and businesses. They put re-election before the economic health of the nation and the interests of their constituents. Opportunism guides them rather than principle. I wish them a rather nasty depression.

What is likely to happen next? With a bit of luck, the House will be frightened by its own audacity and will reverse itself. If a substantively similar bill (or a better bill that addresses not just the problem of valuing toxic assets and getting them off the banks’ books, but also the problem of recapitalising the US banking sector) is passed in the next day or so, the damage can remain limited. If the markets fear that the nays have thrown their toys out of the pram for the long term, the following scenario is quite likely:

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Filed under: Bailout Turmoil • Economy • Raw Politics
soundoff (18 Responses)
  1. Betty Mayo

    The Sarah Palin article tonight was really below the belt. Of course you would get those comments from the natives in that village. I think your coverage of her is really poor. Give her a break and we listeners too. How about that kind of coverage of Obama and his dealings with Acorn and the Chicago political machine. Lets hear about the people that mentored him from his youth. That would make a more interesting subject to many of us. Why is he being handled with kidd gloves? That's just the reason I turn off CNN most of the time. Thank God we still have Lou Dobbs.

    September 30, 2008 at 11:23 pm |
  2. Timothy Gibson

    Personally, a bail out for the lenders who created this problem, not to mention the speculation that added fuel to the fire is not an option.

    I say let the lenders who did the evil deeds pay the price for their sins. If they fail they fail, so be it. As a child I learned to pull my boot straps up, not grease the pocket of ever crook on wall street and in congress. Not every bank will fail, and those of us who have been responsible will make it through what ever comes.

    I say the days of the bail outs are over and done. It is time to move forward and stop beating a dead horse.

    September 30, 2008 at 9:56 pm |
  3. Bret Peters

    I'm interested in hearing more about the DeFazio plan. I have done some research today on other similar successes, as well as our 1980's solution. Looks good with risk but not to the tax payer. But with the world economy as well as our own credit freeze depending on confidence of immediate action by Thurs. I feel we have run out of time to try it. Also in future hind site, we will all feel like fools buying into the fear and hype feed to us by the powers that be. Fools rush in but we were all left little time to come to a solution, even though they knew of the crisis forming months earlier. One of the many reasons I'm voting Obama. Fool us once(Iraq), shame on you. Fool us twice, shame on us. "A house divided will fall" If we all go down with this we should all go down together, then pick each other up. Not fare but we are left with little options, as always with this administration.

    September 30, 2008 at 9:00 pm |
  4. Cindy

    Sorry guys. This is just the Y2K scare all over again. In other words totally overblown by people who have no clue what they are talking about. I've lived through the S&L ,14% interest on homes and gas shortage debacles and it didn't take knee jerk reactions and 700 billion with all sorts of special interest inclusions for the US to come out of that.

    September 30, 2008 at 8:51 pm |
  5. Max in Phoenix, AZ

    Voting "nay" on the Bailout was the most plesantly surprising thing i've read in a while. The media makes it sound like we HAVE to bail out these companies or our whole country will collapse. This is far from accurate. It will cause some problems in the short term, and possibly a sort of official depression, but the BIG PICTURE is that it will clean out those that used their power to take advantage of the American people. Others that lended responsibly and didn't break laws will step up and take their place and the economy will rebound. The real problem is the enormous debt caused by the ongoing battle in Iraq (which we need to hand over to their government and focus solely on finishing what we started in Afghanistan and then getting our people home).

    This might also help lending practices go back to a realistic state. People say that everyone should be able to get a home, which is a nice thought, but how fair is it if the banks are giving people mortgages and loans that they know the people cannot handle and giving a family a brand new home only to see the family forced out because of foreclosure a year (or less) later? We need to make REAL LAWS THAT HOLD THESE LENDERS ACCOUNTABLE instead of paying for their greed because the media is trying to tell us we have no other choice!

    September 30, 2008 at 7:51 pm |
  6. Justin

    The CEOs of the banks should not get anything, zilch, nada. They messed it up trying to get more money into their pockets why should they get anything. I read that a ceo of some company (forgot which one) but he/she got 19 million dollars for working 3 weeks, 3 lousy weeks, what in gods name did this person do for 3 weeks to deserve 19 million dollars. Their are alot more hard working people out there that should get 19 million for the things that they do. Another ceo got 147 million dollars in severance pay, why would this person recieve that much money on severance pay, I doubt they did that much of work to deserve it, this is where all of the money is going, to people who do not deserve as much money as they are recieving.

    September 30, 2008 at 7:43 pm |
  7. Ruth

    I'm not sure exactly what the plan is, but the Govt should negotiate all mortgage contracts with people to keep them in their home, pay the debt, less those ridiculous rates, maybe at a 10%? Tack on 10% as a total of the interest of the entire loan. Get people into an accounting or budgetary service and work it out over so many years. This would keep them in the house, and they would have money to spend. The economy needs ongoing funds. They need to wrok from the bottom up.

    September 30, 2008 at 7:24 pm |
  8. Bill in NJ

    It's very easy for the people in Washington to condemn the banks for offering loans to people who they claim "could not see for themselves" that they could not afford these loans. Yet these same politicians are afraid to go against the fear of their people who apparently "can not see for themselves" that we need this package passed quickly.

    Who is at fault in the end – banks who opened the gate or politicians who are afraid to use their votes to close it?

    September 30, 2008 at 6:59 pm |
  9. Annie Kate

    This article should be required reading for Congress. And they should be the first ones laid off if a bailout isn't passed. That approval rating they have – we thought it was low – its too high – it ought to be in the negative numbers.

    Annie Kate
    Birmingham AL

    September 30, 2008 at 6:55 pm |
  10. D Standridge

    If you want to see real impact that 700 billion dollars can make, try this:

    1. Inject 1million dollars for 175,000 small/midsize companies

    2. Inject $500,000.00 for 175,000 small companies

    3. Fund 175,000 new small business ventures at $250,000.00 each

    4. Fund 350,000 new small business owners at $100,000.00 each.

    This will immediately inject capital into the money markets of the US and will guarantee existing companies money flow back through the open market. The banks will still have billions of dollars in cash flow, new purchases will go through the roof and it will provide millions of new jobs throughout the us and other world markets.

    The other 40+ odd billion dollars will be provided to move the "Wall Street Fat Cats" out of their multi million dollar homes and provide them with jobs, "Real Jobs", equivalent with their past proven abilities, sweeping-up after the rest of us in the US who are employed with real jobs.

    September 30, 2008 at 6:55 pm |
  11. Patrick of Ohio

    is it too late to vote for ron paul, didn't he foresee fannie mae and freddie mac and the crunch that would follow?

    September 30, 2008 at 6:44 pm |
  12. Ron B.

    I totally disagree. If you really would rather have a taxpayer bailout, that means lean towards communist or socialist views. The stock market reacted today to common sense. The world is not ending. Let the free market work. For those inept bankers, wall streeters and politicians who let this happen and made all the bad investments / policies, tough luck. They made their bed, let them sleep in it.

    September 30, 2008 at 6:40 pm |
  13. Brian Minsinger

    So less regulation would be needed if the companies that play the game over the line are allowed to fail, bailing them out just just allows the same to continue, and more regulation hampers free enterprise.
    If we bail out morgages for a reduced price or make up the difference for the lenders who passed bad paper, then we put those lenders or the US government in a position of competision with the home owner who did everything right and is trying to sell his house at the lower market value.

    Or better yet he is first putting up the money so the government can out bid him for the few buyers left in the market , or the same lender who he bailed out - sounds fair

    September 30, 2008 at 6:31 pm |
  14. debbiem

    Any one notice how the stocks closed today? Interesting that the sky didn't fall today!

    September 30, 2008 at 6:28 pm |
  15. Gary Chandler in Canada

    Is there Conflict of Interest? Vote yes and you don't get campaign funding!?
    Think about it, the golden parachutes stay in place without the legistlation. Even then, the CEOs will sue for the golden hand shakes; and probably win!

    September 30, 2008 at 6:13 pm |
  16. Patrick of Ohio

    Well said.

    Remember though we need a provision to not just take some money from the fools that did this to us and leave them with millions or billions of dollars and their jobs. We need to at the least fire those that failed us. Is this not the year of change? If so let's change things up, let's get rid of the old failures, let's give this more securities to the people. We do have to pull a bailout, that is clear, but we need to make a good one. The last one simply would not do. Time to listen to the people on this one. The government messed up before, so it's time for them to seriously listen to all of us and all of our ideas.

    I think almost every everyday american wants to see these ceos investigated and terminated from their positions to say the kindest. Congress, you might as well add that in, there's no way americans are gonna sit by and be content with letting these people continue their reign. As for making the whole deal less riskier, find a way for ALL americans to physically recieve either dividends from the companies, or allow them all to posses share of the stock if it's their money you are using. While you're at it include a clause fixing the mortgage rate so that predatory lending gets cut out and find a way that when the bailout occurs those in trouble of losing their mortgages get extended time to pay off their loans, or even relief of their loans. If you do one or some of these ideas, particularly the terminating of the ceos I think you will make things happier for people and probably less risky financially.

    September 30, 2008 at 6:06 pm |
  17. Youlanda White

    I feel that the bailout is not about helping the American people but about the government trying to get in compliance with the Basel II initiative. I would like to see someone like Roland Martin or Anderson Cooper investigates this I am. I think the US is not in compliance with this agreement and we must be. Basel II: Revised international capital framework

    September 30, 2008 at 5:50 pm |
  18. Cindy

    Once I heard that the bail out bill failed I knew exactly why. The ones in congress are too worried about keeping their jobs and trying to win the presidential bid for their party. They put the American peoples interest on the back burner. Hopefully this will turn around on them and bite them. But as usual we will probably get the brunt of their stupidity.


    September 30, 2008 at 5:45 pm |