It's important to understand the political dynamics of what occurred yesterday to gauge what will happen with the US Treasury's TARP plan going forward. The key was getting 100 Republican votes.
What's astounding is that at noon, the party whips did a vote count and knew that they wouldn't get the 100....and they went ahead anyway with the vote. Why Pelosi and Boehner would take such a risk is beyond my level of understanding, but we know that the penalty for their decision was over $1 trillion in losses in stocks was larger than the actual package.
Unlike the saying that failure is an orphan, there's plenty of blame to go around. The delivery of a 2.5 page bill to Congress asking for authority of up to $700 billion is a good starting point. The TARP program should never have been called a bailout plan for Wall Street. It should be re-packaged as an economic plan to save jobs on Main Street because that is what it's going to do. The question politicians should ask their constituents is do they want to have a job in six months vs do they want to pay for the bill in the future. With a fragile economy and a credit crunch with no new economic plan, the more likely the US goes into a recession or worse. This is what should be said.
The way forward can go down two paths. The likely scenario is that the TARP plan will be slightly modified and gain voters support after they look as the pension/401k plans. (I called my House Rep yesterday and voiced support. I recommend everyone call as well to tell them what you think.) Unlike what is being said on "Squawkbox" today, I don't think it's necessary for stocks to continue to collapse to put pressure on Congress. A 777 pt drop in the Dow yesterday already has done this....further falls don't have to be anywhere near this magnitude to generate the momentum. S&P is down 24.65% on the year.
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The other way forward is to start to strip out parts of the bill that are important. I would suggest giving the Fed the ability to pay interest on reserves to give them the opportunity to expand their balance sheet and not drive Fed Funds to zero. House Republicans may also get behind the portion of the bill where it gives the SEC the ability to suspend mark to market as well. This path coupled with a coordinated rate cut amongst central banks could stabilize the markets.
Representative government is messy especially when it comes to dealing with a crisis during an election year. We find out which politicians are going to lead and lead in a direction that is best for the country. Whether it's mocking the opposition or mocking the President or not voting for the bill because of a speech, this is not what we expect from our leaders. We demand more and we will vote for whomever provides it. A fact I hope both Democrats and Republicans remember.