IDEOLOGICAL IDIOCY AND THE WAY FORWARD

Let the markets fall and the recriminations spread. When the House of Representatives voted down the bi-partisan bailout bill proposed by the Bush Administration and the Congressional leadership, the markets reacted as expected. They plunged! In the meantime, two banks in Europe collapsed and were taken over before the U.S. Congress voted. Anecdotal reports describe a brief collapse last week of the overnight commercial paper market, a necessary financing arm for businesses large and small to meet payroll and inventory needs while providing other firms with a temporary surplus of cash to earn interest overnight. Washington Mutual (WaMu) was taken over and sold to J.P. Morgan Chase, while Wachovia looked for salvation from Citigroup. The crisis is very real and needs to be addressed.

Unfortunately, the Republican ideologues in the House of Representatives made it clear that they were not prepared to take away down a plank that in their view was but a slide down a slippery slope to socialism. Socialism, seriously? Are the Republican representatives from the heartland so confused about the world that they would describe an equity stake in a $700 billion bailout as socialism? It's not even nationalization of an industry.

In addition, the Republican representatives proclaimed their desire for even greater deregulation and an extension of capital gains cuts towards industry. On the other hand, they were unwilling to lift a hand to allow bankruptcy judges to help filers hang on to their homes.

At least, in one small respect, the Republicans put forth a moderately interesting idea: an insurance system perhaps akin to FDIC insurance that would be paid for by the securities industry. Unfortunately, such an insurance scheme would contribute nothing to easing the current crisis. In short, the Republicans have nothing to contribute to a crisis that is the direct result of 30 years of Reaganomics.

95 members of the Democratic caucus also voted against the bailout bill. Why? Like many economists, these representatives harbored many of the well-deserved reservations about the proposed bailout. Some of these concerns were addressed partially in the modifications to the original Paulson proposal. Some were not. Other objections were trite, yet understandable in the poisoned partisan atmosphere that is the result of 8 years of Bush II misrule.

Certainly, there are plenty of reasons not to trust the Bush Administration, an administration that downplayed the seriousness of the building crisis for the past two years and through its own lack of oversight and deregulatory delusion furthered a climate of anything goes that finally brought down the financial sector when the mortgage backed securities proved nothing more than a house of cards. Besides, there is that $10 billion per month Iraq debacle that is no more closer to conclusion now than it was in 2003.

One of the primary deficiencies of the proposed legislation was its almost total failure to address what is at the heart of the current crisis: the unending procession of foreclosures in the housing sector. As long as no legislation, akin to the 1933 federal Home Open Loan Corporation that pioneered the 15 year mortgage and kept people in their homes, is proposed nothing will staunch the bleeding in the housing sector. Nor can there be any possibility of recovery in the secondary and derivative markets built entirely upon these suspect mortgages. What needs to be done is the creation of an agency similar to what FDR put into place in 1933 that kept people in their homes and took problem mortgages out of the hands of savings and loans. Until this happens, whether $700 billion will be enough to reprime the global credit markets is open to question. Certainly, the first $400 billion prior to the latest request was not sufficient.

The righteous anger against investment bankers, Wall Street wonder boys and other greed gobbling Gatsbys unfortunately has clouded the judgement of too many Americans towards the necessity for action. Shout on until the crisis begins to cut sharply into Main Street as credit tightens up even further and jobs begin to become scarce. Righteous indignation without reason is ridiculous and has been fostered by runamok Reaganism for far too long. As the echoed shouts of USA, USA peter out, so too will the industrial and financial strength of a once great country. Let them stuff that in their ballot boxes, especially in the American heartland that for too long has heaped scorn on the cosmopolitan coasts.

That John McCain has the audacity to blame this on the Democratic party for injecting partisanship into a spirit of bipartisanship after his partisan grandstanding last week is beyond repulsive. It bespeaks how low the entire Republican party has fallen. That John Boehner and his Republican lackeys want to blame a speech by Nancy Pelosi for sabotaging the bailout legislation is absurd in almost every respect. Why would the Republican party even care to listen to a speech that more or less demanded that Republicans look in the mirror and see what 8 years of their own mismanagement has wrought in order to move forward? Are their egos that fragile that they cannot accept some of the blame? Or, are they so ideologically blinded that they cannot recognize how all of this is the logical consequence of Reaganism?

It's time for the Democratic majority in Congress to assert itself and propose the necessary legislation to move this country forward and deal with the crisis in both aspects: deal with problem mortgages and bailout out - under strict conditions - the financial sector that for too long played fast and loose with bogus paper, unearned bonuses and undeserved severance packages.

If the Republicans want to vote no in the House, let them. Their votes are only important if the Bush White House wants to veto legislation passed by Democratic majorities in Senate and House. Let the Democratic members of the House and Senate have the courage to explain in clear and certain terms why this had to be done, what precautions they have taken and why their path is the best way forward. And, let the voters have the courage to overcome their own angst and righteous indignation and rationally reflect on something they might not wish to do, but realize they probably have to do.