The list for Profile in Courage Awards...

just got shorter.

House Speaker Nancy Pelosi takes her name out of the running by declaring that she won't support a bailout unless a significant number of House Republicans (who are of course in the minority in that chamber) vote for it:

House Speaker Nancy Pelosi is telling Democrats that she will not support President Bush’s $700 billion bailout of the financial sector unless there is significant Republican support for the controversial plan...The politics of the bailout are tricky and dangerous for both political parties...As a result, Pelosi (D-Calif.) has effectively sent the message that if she is going to jump off a cliff to rescue Wall Street, she wants House Minority Leader John Boehner (R-Ohio) and George W. Bush holding her hands when she leaps.

This may make sense politically. There will be a fair amount of political backlash for the bailout plan.

As I've stated below, however, there are good reasons to be skeptical. But whether Speaker Pelosi supports it should turn on something other than how much political cover she has, don't you think?

Former Bush Economist Voices Concerns Over Plan

If you only read one thing today about the Treasury's proposal to purchase bad Wall Street debt, make it this:

The financial system is the heart of our economy and it is in trouble. If we do not fix it soon, we risk a serious recession...Bold action can be designed with lower costs to taxpayers, while accomplishing the goals Treasury Secretary Henry Paulson has laid out. Elected officials should act quickly -- but carefully.

This quote contains only the beginning and end so you can see where the authors, including former Chair of the Council of Economic Advisers Glenn Hubbard (a Bush appointee) and his co-authors are coming from.

We need to act, they say, but we also need to get it right. Hubbard gives the Administration credit for taking urgent, decisive action, but he also gives due props to Senate Democrats who want to add some good ideas as well (unfortunately, some Democrats have less helpful ideas though). He and his co-authors provide three concrete suggestions for improving the Administration's proposal.

This article is the exact opposite of 90 percent of what I've seen and heard on the situation - one with no exterior motive to help position one candidate or ideology.

Art: the cartoon accompanied the original article in the online Wall Street Journal.

Skepticism Over The Treasury Plan

I don't want to pretend I know what you're thinking when it comes to the government's plan to address the mess in the financial system. It may be something like this though:

Thank goodness someone has a plan. Don't bother me with the details, just do what it takes to fix it and let's get on with our busy daily lives.

That's pretty much how I reacted when I learned we had termites in our walls.

When the bill ranges in the billions of dollars, though, we probably should bother to stop, learn a little bit more, and ask a few questions before plunging ahead.

First, a summary of the problem via Paul Krugman:

1. The bursting of the housing bubble has led to a surge in defaults and foreclosures, which in turn has led to a plunge in the prices of mortgage-backed securities — assets whose value ultimately comes from mortgage payments.

2. These financial losses have left many financial institutions with too little capital — too few assets compared with their debt. This problem is especially severe because everyone took on so much debt during the bubble years.

3. Because financial institutions have too little capital relative to their debt, they haven’t been able or willing to provide the credit the economy needs.

4. Financial institutions have been trying to pay down their debt by selling assets, including those mortgage-backed securities, but this drives asset prices down and makes their financial position even worse. This vicious circle is what some call the “paradox of deleveraging.”

Next, a summary of the Treasury's proposal to address it. The Treasury would be legally empowered by an Act of Congress to purchase troubled assets to promote market stability and "unclog" our financial markets. The limit on this authority would be set at $700 billion. The assets are "intended to be residential and commercial mortgage-related assets, which may include mortgage-backed securities and whole loans." The government would sell off the assets once they regained some value.

One big question will be "how much will the government pay?" As law professor Hal Scott notes, pay too much and the public will be outraged. Pay too little, though, and we'll fail to accomplish our objective. Another is whether this is even the right model. Some, such as Krugman, have suggested that the Fannie Mae bailout from a few weeks ago is a better model, with the government actually taking ownership.

I'd like to think that there's a little time for rationale discussion and that the markets, knowing that help is on the way in one form or another remain calm. Otherwise, we'll just need to buckle in.

Quote of the Day

"When normal Americans know who the Secretary of the Treasury is, that's not good."

-Wil Durst, political satirist

Normally, we're all for people know more, rather than less, about key government policy makers, but there's a more than a grain of truth to the above. At right is Andrew Mellon, who was Treasury Secretary during the stock market crash of 1929. Mellon would have been decidedly opposed to the Federal Government's proposal to purchase assets from financial institutions (or "cash for trash" as Paul Krugman has dubbed it).

Don't Leave Town for the Weekend...

is the recent lesson I've learned.

A few weeks ago, I came back into town to learn that the Federal Government had taken over Fannie Mae and Freddie Mac.

On Monday, the Wall Street Journal reported that Wall Street as we knew it was over, as the two largest remaining investment banks had opted to convert to bank holding companies:

With Goldman Sachs and Morgan Stanley becoming commercial banks, and the other three big investment banks/brokerage houses being acquired by commercial banks, politicians and the press won't have Wall Street to kick around anymore. Headlines now shout about a $700 billion "Bailout for Wall Street." Yet strictly speaking, Wall Street as we knew it no longer exists. (emphasis added)

You know, you go out to the country to pick some pumpkins and buy some cider, and Wall Street goes out of business. This is becoming all too typical. What's next perhaps? The Onion gives us a clue in the photo above.

A good laugh...

is what we could use right now rather than a civics lesson. This is a personal favorite from The Politico.

What Might a McCain Presidency Look Like?

Last month, John Fortier of the American Enterprise Institute asked an important question. How would John McCain govern?

He noted a few McCain character traits:

McCain’s governing style displays a healthy balance between loyal insiders and outside advice. McCain has attracted loyal long-term staffers, such as chief of staff and co-author of his best-selling books, Mark Salter, but he also seeks counsel from a wide range of advisers inside and outside his campaign...

This is important because one of the chief failings of the current administration, in my view, has been insularity. People from inside Bush World were given key posts, even when not suitable. Outsiders who were tapped really didn't wield real power. Compare that to Ronald Reagan who made his chief GOP rival's campaign manager his Chief of Staff. A good leader will reach out and hire the best people, regardless of their past affilations.

With McCain’s emphasis on fiscal responsibility, lower spending and cutting congressional pork, a McCain presidency would likely see vetoes of appropriations bills and budget showdowns with Democrats. On this front, McCain would probably find strong backing from his Republican colleagues, who while in the minority would support fiscal restraint wholeheartedly.

As a Republican President with a strong record of fiscal restraint dealing with a Democratic Congress, McCain would likely do a fairly good job keeping spending in line. That's a big advantage he's got in my view over Senator Obama, who likely will go along with Congressional spending wishes because he's got some ambitious plans of his own, e.g., health care.

Fortier surmises that McCain's record of bi-partisanship and independence from his own party's line means that he'd work better with a Democratic Congress than any of his GOP rivals would have, which I find to be a reasonable assertion.