Pancake City

To quote President Bush, a man second in elegance only to Winston Churchill, on the state of the Wall Street bailout: “If money isn’t loosened up, this sucker could go down.” (quote)

Indeed. But why is this sucker in threat of going down?

I think a lot of the problems at hand could have been avoided if Treasury Paulson called it “The Rainbow Unicorn Package! With Sprinkes!” rather than a “bailout.” You bail out screew-ups, and who wants to do that?

The real stumbling block though is uncertainty. What I find amazing is that not only are economists still debating the structure of the bailout, some of then are still debating whether we even need a bailout.

Take a look at The Washington Post today. On the front page is an article on how some economists are doubting the premises behind the bailout.

But I’ve also read many commentaries by analysts like Steven Pearlstein, someone whose opinion I respect a lot, summing up the current debate and making a sound argument on why we need to do something.

Political debates need engines to drive them. It could be the engine of expert opinion, of special interest groups, of public consensus, of ideology, of a strong leader, or more often, some mix. In this debate, a clear driving force has yet to bubble up.

Ideology hasn’t even helped define the debate. Conservative and liberals have crossed lines to both support federal intervention and argue for doing nothing.

Sec. Paulson, President Bush, and Senate leaders are the default engine, agreeing to a bailout in principle and negotiating the details. That’s where we were on Wednesday. The problem is that the negotiation is fragile and can’t withstand even a small challenge, which is why the plan got tabled when Senator McCain (representing House Republicans) injected himself into the process.

My sense from the negotiations and what I’ve read is that some sort of bailout is needed, but no one wants to own the bailout because the political downside is great and the upside small. People won’t like you more if you support the bailout, but they will like you less. In an election year, that makes action in the House impossible unless both sides give each other cover by signing on to the plan.

Senator McCain did a lot of grandstanding by canceling-without-canceling his campaign and then ducking out of the debate peekaboo, I’m-back! Yet if the Republican leaders in the house are unwilling to get their members in line behind the bailout, then perhaps he has a useful role to play.