The Bailout Is Dead

Such high drama on Capitol Hill these days. It's riveting.

A few thoughts...

The Paulson plan deserved to be killed for a number of reasons, but the most important is that it went looking for a solution in the wrong place, that is the buying up of troubled Wall St assets. Pual Krugman, Brad DeLong, Nouriel Roubini, and others have argued convincingly that the best way to fix the problem is a recapitalization of failing banks, not simply taking their junk off their hands. This is how Sweden avoided calamity in the early 90s, so there is precedent as well. The Paulson plan would amount to suturing someone's leg when their head has a hole in it.

The politics of the matter are downright ugly. The House Republicans killed this bill, and the reasons seem to vary wildly, from simple cover-your-ass mentality in an election year to actual principled opposition to funding this rescue with taxpayer money. But the failure on both ends lies with the GOP, from their President and Congress who allowed this mes to happen, to the partisan posturing that resulted in the No vote.

But, Democrats should not be so eager to pass something just to be seen as proactive, especially when the major tenets of the bill are and always have been Republican-authored. Again, some Democrats voted Nay on principle, some on political considerations. But the key is to get sensible, take a deep breath, and get to the bottom of it, thereby crafting a plan that addresses the problem properly, protects the taxpayer, and installs a frameork for prevention of future disaster.