Left In Lowell

Hunter lays this out very well, I think.

Now that the first vote on the Paulson plan has failed, and barring alien invasion or other game-changer of planetary scope, it seems one of the following things will happen.
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1. A Paulson Plan, But Miniaturized. It may be that a lot more people will sign off on a $200 billion dollar bailout than would sign onto a $700 billion dollar one. I’m not convinced that would actually work, however, and I’m presuming Paulson has been saying that too. The whole premise of the Paulson Plan is to ride in with so much freakin’ money that you can stabilize the entire mortgage-related marketplace: shock and awe for the financial sector. If you have much less money, it doesn’t follow that you’d stabilize squat. It might just create an initial rush, benefiting few, followed by the same systemic collapse when the initial money ran out.
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2. Paulson Plan With Conservative Shift. The House can attempt to pass the bill by loading it up with things that the conservatives want, hoping to persuade them. This seems unlikely to work: if the Republicans really are against any bailout based on their (cough) conservative principles, that would seem a non-starter. And any substantive concession to them seems impossible, or at least deeply stupid: proposals like “suspend the capital gains tax” paint the conservatives as more interested in privateering for the rich than actually helping solve the situation.
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3. Paulson Plan With Leftward Shift. The House can attempt to pass the Paulson bailout plan by “owning” it, including strong measures to help homeowners and the general public, and telling the Republicans to get bent. (You know, like many of us were urging them to do, to little substantive effect.) That’ll lose them most Republican support, but the premise would be that it would gain them more Democrats. The House could fundamentally alter the rules of the bailout in order to much more forcefully demand taxpayers be treated as investors in the companies benefiting from the plan: something akin to the 1992 Swedish plan.

This would have the benefit of, you know, actually working. Or at least being more likely to, since it is a more tested solution, and would by design discourage abuse of the program.
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As far as actually demanding taxpayer equity in the afflicted companies, yes: some Republicans would indeed scream “nationalization,” primarily because they are dunderheads. But if your financial sector manages to collapse into a black hole of incompetence, book-cooking or generally irrational behavior, and furthermore manages to foul things up so badly that it is threatening to take the entire world economy with it, a short-term nationalization or whatever-you-want-to-call-it of collapsed companies hardly seems a surprising or outrageous intervention. It’s happened before, it’ll happen again. The CEO’s in question should instead thank heavens that this is the new millennium, and modern governments have no plan to place their severed heads on pikes as a warning to others. Viva progress!

The common assumption, however, is that Bush would veto any plan that either provided substantial economic stimulus or taxpayer equity. Quite possibly — though that’d be one hell of a gutsy veto, with the entire economy on the line. Certainly, if he vetoed it the Republicans would make sure the veto stuck, depression or no depression.

4) A New Damn Plan. The Congress can abandon the Paulson bailout plan entirely, and craft something different — radically different. A bottom-up economic stimulus plan coupled with some short-term liquidity boosts; a radical plan for failing financial companies; buying every American a puppy. Who knows.

What’s frustrating about this entire process is that it has been absolutely devoid of leadership. Bush is nothing but a paper doll standing in the background; nobody honestly expects he even understands the problem, much less has any confidence that he can rustle support for a workable plan. He has zero credibility left, even with his own party. Likewise, McCain has been, shall we say, unhelpful — jumping to and from positions like an over-caffeinated child who’s gotten into the coffee-flavored ice cream.
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And Democrats? Well, the Democrats haven’t displayed anything resembling leadership either. They accepted the Paulson plan at face value, content to use it as the base upon which they could attach minor changes. There has been no substantive discussion of other possible plans. There has been no attempt to come up with a “Democratic” solution. No economists have been queried in order to find out what an alternate plan might even look like.

That is a failure of leadership — and in a financial crisis, no less. Bush, the Republicans, the Democrats — in all of Washington, there seems not one damn group worthy of confidence. Paulson deserves some credit for even coming up with a plan for people to shoot arrows into, given that it’s a hell of a lot more than anyone else in power has done.

… Time and time again, the Democrats have been content to let their opponents set the agenda, and have been reduced to constantly reacting to developments instead of controlling them. It is a dysfunction that seems in no hurry to self-correct; heaven help us, dealing with a financial crisis at a time when there seems nobody in the entire government up to the task.

This leads, alarmingly, to the fifth possibility for what’s next:

5) We Do Nothing. This seems the most likely of all the scenarios, and would be the most damaging one. As in, very, very bad. The financial sector does need an intervention: the only question is how it should be done. Given that a large segment of the Republican congress has absolutely no interest in such an intervention, it falls to everyone else to come up with one — and it’s not clear that, given the divisions, anything has the votes to pass.

That’s the key difficulty, here. I do not consider this first failure of the Paulson plan to be cause for alarm — far from it, it was a crappy bill, even with the “compromises” installed — but the dynamics surrounding the defeat may very well be alarming, because our capability for doing anything substantive has now run headlong into the functional and ideological divide that has paralyzed the Bush economy since Bush first seized control of it.
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In short, every truly useful option seems impossible, and every expected source of leadership has come up painfully dry. We may be completely screwed — at least until January. And that is much, much too long.

Yup.