
Heavy-Handed Politics


Wednesday, September 24, 2008



The administration's vast bailout plan is meeting resistance this week, with Democrats calling for a more populist plan, Sen. John McCain and others on Capitol Hill calling for more congressional oversight of these proposed new powers for Treasury, and some conservatives and economists of all stripes questioning the efficacy of Paulson's plan, if not the broad idea of a bailout.

1. The mood of the day in Washington is panic and fear. Lawmakers in meetings with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke left ashen-faced when warned about the potential course of the U.S. economy absent a massive bailout. Those in the know keep hushed tones and insist "trust us," while laymen—basically everyone in Congress and the press—fear the unspeakable catastrophe around the corner.

2. Emboldened Democrats—including Sen. Barack Obama—are forcefully pushing an unapologetically interventionist line, stating repeatedly, in as clear terms as possible, that capitalism is the problem and government is the solution. It's the sort of stark rhetoric Democrats have mostly avoided for the past 12 years, but they feel they can get away with in the light of the Republican administration's accelerating march towards nationalizing the financial sector.

3. Congressional Republicans and conservatives, meanwhile, are almost completely at a loss. Republicans are still finding their footing after denying for months that the economy is endangered. Frantic behind closed doors, they seem unable to propose any solution that approaches the magnitude of the problem. Promising more drilling, capital-gains-tax cuts, and full business expensing comes across as laughable—the same things the GOP was pushing while saying the economy was strong.

4. At the presidential level, it's not only that McCain and Palin lack credentials and knowledge about economics, but McCain also lacks a real rudder. As the GOP nominee, he has taken up free-market talk, but does he really have any roots in a philosophy? Does Palin have the clout or the know-how to guide McCain? The answer to both questions is probably not.

5. When Republicans highlight the Democratic big-government programs that contributed to the mess—Fannie Mae, Freddie Mac, and the 1977 Community Reinvestment Act directing private capital in low-income housing—they lack conviction and credibility, having long been champions of policies such as IRAs and 401(k)'s driving money to Wall Street, or the home-mortgage interest deduction and the "ownership society."

6. The closest conservative talk has come to hitting on more fundamental problems of government's masterminding the economy has been a proposal—pushed by House conservatives under the auspices of the Republican Study Committee—to roll back the Federal Reserve's mission, leaving it only one charge: battling inflation. Some conservatives have critiqued "easy money."

7. Democrats, meanwhile, confront the threat of moral hazard by calling for stricter regulation and other expansions of government power. Control over CEO pay is just the most populist of the new regulations Democrats want to tack onto the bailout.

8. There is no Democratic willpower to torpedo this bailout. Right now, it appears the majority will simply add as much as they think they can get away with, and pass Paulson's plan. But Democrats also are very wary about passing a massive corporate bailout for which Republicans can attack them. In both chambers, they will work to make sure they have GOP support, but the minority may have the political upper hand here.


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