Note: Apologies for this post's length, but I felt that in order to make this really comprehensive, I had to have it go longer than most posts. It tries to summarize and boil down the negotiations over the complex issues involved in the credit market problem. For the sake of simplicity and navigability, it is broken into five separate parts, which you can scroll to individually: 1) The State of Play 2) Leadership Moves 3) Alternatives 4) Likely Outcomes and 5) The Progressive Bottom Line. Sign the Campaign for America's petition demanding a much better bailout here.
Following the astounding rejection of Henry Paulson's speculator bailout plan in the U.S. House of Representatives on Monday, a wave of doomsday propaganda from Washington, both presidential candidates and the media has flooded the airwaves - all aimed at trying to force public opinion to support handing over $700 billion to Wall Street, no strings attached. Barack Obama, who has raked in $10 million from investment firms, has even issued a statement questioning the patriotism of the Democrats and Republicans who dared to vote with the public and against the Wall Street bailout. He claims they are refusing to "do what's right for this country." But as the Washington Post poll today shows, the public isn't budging. Indeed, after 16 years of aggressive deregulation from both the Clinton and Bush administrations, the country has figured out that when the Establishment joins in unison to back something for Wall Street, it means taxpayers are about to get fleeced.
With the Dow flying up and down across the nation's television screens, all Americans are worried about our jobs, pensions and life savings. Many are also confused at what their government is going to do. And so as Congress prepares to reconvene on Wednesday, here's the state of play, the likely outcomes, and what progressives must demand.
In two separate stories, The Politico reports that Corporate America is intensifying its efforts to ram the Paulson plan through Congress, despite the House's stunning rebuke. Specifically, the U.S. Chamber of Commerce - the most powerful corporate font group in the country - is overtly threatening retribution against any lawmaker that opposes the $700 billion bailout. Meanwhile, the lobbying industry is beginning to reap a windfall from industry clients expecting to profit off the Paulson plan.
Though House Democrats spent yesterday claiming that the original Paulson plan was amended to include stronger protections for taxpayers (CEO pay limits, aid for homeowners, equity stakes in financial houses for taxpayers, etc.), the Treasury Department was simultaneously holding a secret conference call with Wall Street analysts explaining how those new provisions were specifically written to be unenforceable (you can listen to the conference call here).
The conflicts and corruption surrounding the bailout have even impacted internal Democratic Party deliberations. At an afternoon press conference (video here or at right), Rep. Peter DeFazio (D-OR) recounted how when progressives and Blue Dog Democrats proposed a financial industry tax to pay for the bailout, Democratic leaders sent in Laura Tyson to kill it by saying "the street wouldn't like it." According to DeFazio, Tyson was brought in "under the guise of being a former Clinton economic adviser, forgetting to tell us she's on Morgan Stanley's board of directors." Despite her corporate ties (or perhaps because of them), Tyson is also simultaneously an adviser to Barack Obama's presidential campaign.
At the same time, the pundit class - which is, of course, also the investor class - is clamoring for immediate action on the Paulson plan, and calling the public stupid. As the best example, Tom Friemdan - a billionaire by marriage - uses his New York Times column today to assert that Americans are simply too dumb to understand what's going on, and are thus stupidly opposition to giving away almost a trillion dollars to Friedman's Wall Street friends who engineered this crisis.
Much of the legislative wrangling is going to play out in the House, rather than the Senate. Unlike the upper chamber's members, every lawmaker in the the lower chamber is up for re-election and therefore the fear of voter backlash is a much more prohibitive factor in supporting this bailout in the House than in the Senate. That said, the Associated Press reports that the Senate is trying to attach a Republican-backed corporate tax cut to the bailout - one that the House has already rejected. If that passes, it could potentially create an insurmountable legislative gridlock between the chambers, or it could be just the crony-ish giveaway that greases the wheels.
As I noted in my reporting yesterday, a major question for the House Democratic leadership is whether to make the proposal that got rejected on Monday more conservative or more progressive?
If Democratic leaders make the bill more conservative - for instance, by loading it up with corporate tax cuts, as the GOP demands - it could eke through the House with almost all GOP support. Of course, this would be an unprecedented move, in that the House Democratic leadership would be using its power to steamroll its entire party and hand over the reins of legislative power to the minority party.
Alternately, the Democratic leadership could add in key Democratic priorities, such as toughened financial regulations, bankruptcy law reforms helping homeowners prevent foreclosure, direct government aid to mortgagees, a tax on the financial industry to pay for the bailout, and the job-creating $60 billion economic stimulus/infrastructure spending package the House passed a few days ago. This would sacrifice Republican votes for the Paulson plan, but it could unify the Democratic majority to pass the bill with mostly Democratic votes.
To date, it looks like House Democratic leaders are leaning to the former, rather than the latter. Rep. Joe Crowley (D-NY), one of the Democrats' top recipients of corporate cash, told Roll Call that the focus is on convincing 12 more Republicans to support the bill - rather than instead getting more Democrats to support it. ABC's George Stephanopoulos says it is "unlikely" that the Democratic leadership will move to "get more Democrats on board" and instead will probably tilt right to get more Republican support.
At the same time, the media commentariat pushing the bill is clamoring for immediate action and no substantive changes at all - the assumption being that the public is drop-dead stupid. Bloomberg News' Al Hunt, for instance, told PBS's Charlie Rose that Democrats should add in meaningless "cosmetic" changes to give lawmakers cover to switch their votes - as if those lawmakers wouldn't face scathing criticism from their re-election opponents at home. Likewise, the New York Times' David Brooks claims "there's no time to find a brand-new package." But that is far from true.