Congressional Hearings Already Underway

As I posted below, I knew Congress would need to hold hearings, but I didn't realize they would happen so soon given that Congress is actually not in session.

The odd thing is the committee that's holding the hearings. The House Government Oversight and Reform Committee (Chairman Henry Waxman) will hold 5 hearings:

October 6th: Lehman Brothers

October 7th: AIG

October 16th: Hedge Funds

October 22nd: Credit Rating Agencies

October 23rd: Federal Regulators

This Congressional activity actually reinforces why we need a commission. This particular committee has absolutely no jurisdiction over the activities in question, no jurisdiction over the laws that might need to changed and no expertise in the issues involved. Further, it is one of the most politically charged congressional committee.

Expect a lot of heat and little light.

Obama - a good moment and a bad one

Senator Obama has generally been speaking in favor of the financial bailout concept. Agree or disagree with him, he's shown some leadership.

Senator McCain has not given any indication of his views on this, which is very troubling. His intervening in the process, then, is pointless showboating at best.

So far, Obama has shown a steadier hand in dealing with our nation's most pressing domestic issue.

On the other hand, Senator Obama has not shown an understanding of the nation's financial health that previously I credited him with having. When asked whether the bailout would alter his ambitious health care plan, he said "no":

Barack Obama told CNBC's Chief Washington Correspondent John Harwood that his plan to reform the nation's health care policy won't fall victim to the government's $700B bailout plan.

HARWOOD: So no change in your health care plan?

OBAMA: Well, the--but keep in mind, my health care plan is paid for. And I continue to believe that rolling back the Bush tax cuts on the wealthiest Americans makes sense. They are still going to be wealthy after those are rolled back. I still believe that it is important for us to make college more affordable. And I think it's important that all those things are paid for in light of this huge additional potential expense.

Huh?

It may have been paid for, but the bailout isn't.

That's like saying that you had planned to buy a new car and had saved for it. Now that you find you need a new roof, and don't have any money saved. Are you still buying the car?

Not if you're responsible, or as Paul Krugman likes to call it, a "grown up."

"The Adults in the Room"

Today's Wall Street Journal headlines the largest banking failure in US history:

In what is by far the largest bank failure in U.S. history, federal regulators seized Washington Mutual Inc. and struck a deal to sell the bulk of its operations to J.P. Morgan Chase & Co.

The collapse of the Seattle thrift, which was triggered by a wave of deposit withdrawals, marks a new low point in the country's financial crisis.

Here's the most important paragraph, though:

the fact that no bank was willing to buy WaMu until it failed shows how badly confidence has eroded in a banking system awash with record profits just a few years ago. Faced with deepening losses on mortgages, credit cards and other loans, big and small banks across the country are struggling with what many bank executives say is a crisis far deeper than the savings-and-loan debacle.

Although he veers a little into the lunacy that has gained him some readers he shouldn't covet and lost him some he should, Paul Krugman asks the right question - Where are the grownups?

His answer, though, that they're to be found in Congress, is fairly laughable (see yesterday's post for one example).  Further, some of his criticisms are part of the "bad Paul" (the NY Times political columnist) rather than the "good Paul" (the Princeton economics professor).

Meanwhile, House Republicans are pushing an alternative approach.  Rather than having the government purchase the bad investments from banks, they would prefer an alternative where the banks would buy insurance from the government for the debt.  

I'm not entirely clear on the details of this proposal and it doesn't sound like it would address the problem of banks having too little equity to debt to continue to lend.  However, the Journal reports only 30-40 House Republicans will support the proposal on the table between the Administration and Senate Democrats.

House Republicans, however, are in the minority.  Democrats control both chambers of Congress.  They are afraid, however, that the public will blame them for their costs of the bailout and are unwilling to proceed without strong Republican support, even though it's not need for passage.

In short, Krugman's "adults in the room" are playing CYA, big time.

Will WaMu's failure change the dynamic and get what looks to be a good compromise between Senate Democrats and the Treasury back on track?

Stay tuned.

Much ado about nada...

We read today that the candidates are trying to use each other's person lives to paint them as out of touch:

Democrat Barack Obama seized on comments from Republican John McCain in a Politico interview Wednesday where he could not identify the number of houses he owned. As Obama mocked his rival at a town hall meeting here for the comments, his campaign sent an ad to national cable stations and deployed high-profile surrogates in 16 key states, casting the comments as evidence that McCain does not understand working families.

But wait!

McCain’s campaign responded by raising Obama’s ties to Tony Rezko, a former Obama fundraiser who was convicted this year on corruption charges unrelated to the senator. Obama and his wife bought their $1.65 million home in 2005 after getting advice from Rezko.

So, who's really out of touch?

The answer is:

Both.

Politicians, especially members of the US Senate, are so divorced from the day to day lives of ordinary Americans its mind boggling. They're driven around, surrounded by staff, have even the most mundane of transactions taken care of, etc. No wonder few retire voluntarily to become just one of the people.

I'm not saying that makes them bad people - just that we shouldn't be fooled into thinking that either "really understands working families" except as an abstraction. If voters keep their eye on the ball and ignore this nonsense, politicians will start talking about things that matter.