Pancake City

PUBLIC: “THE BAILOUT SUCKS! NO BAILOUT!”

NEWS: “The House rejected the bailout 207-226. The Dow dropped 778 points.”

PUBLIC: “DO SOMETHING! PASS THE BAILOUT!”

Meanwhile, in Congress:

DEMOCRATIC LEADER #1: “The bill barely lost. What do we do to get 10 more votes?”
DEMOCRATIC LEADER #2: “Well, we could vastly improve the bill, losing some Republicians but getting more Democrats on board. Or we could make it a lot worse, getting more Republicians to support it so we won’t be blamed as much if it doesn’t work.”
DEMOCRATIC LEADER #1: “Do you even have to ask?”
DEMOCRATIC LEADER #2: ”To incompetence!” [clink]

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.  

The U.S. is almost $10 trillion dollars in debt. We’re planning on borrowing another $700 billion to shore up the banking system, and it may not even do the job. Foreign creditors are hesitating about loaning us more money because they doubt the future value of the dollar or have their own financial problems to deal with. We’ve carried a national debt as long as I’ve lived and there’s no hope on the horizon for getting rid of it.

Can we declare bankruptcy and start over?

Maybe the country can skip the country for a few weeks. We’ll leave out our junk for the repo man, like our analog TVs and 1st-generation IPods, and hide the good stuff in our cousin’s attic in Mexico. “Oh, no! You’re taking our CRT monitor and the HD-DVD player?”

When our creditors stop calling us, we’ll sneak back in the country and live frugally for a while. No one would lend us money again, so we would have to be really good with our finances in the future. No more unfunded tax cuts or war sprees! I’m looking at you, President Bush.

We’ll erect a giant piggy bank in Times Square so if we want to buy something, we’ll save up for it, just like our grandparents did. (Over-sized piggy banks were 15% of the U.S. economy in the 1930s.)

Some parts of the economy will take a hit. It will be a dark day for the dog throne industry. We’ll have to scrape by with regular couches for our pets for a while. And to be frank, I don’t see much hope for the pet porthole sector either.

But if we can send a man to the moon, who says we can’t tighten our belts and live frugally for a few decades, or at least until we figure out how to send our debt to the moon?

I understand though if you find this measure too drastic. There are smaller steps we can take to save money. Canada, fair warning: if 300 million Americans show up at your restaurants tomorrow, be very suspicious if we all have to go to the bathroom at the same time.

It’s the best explanation I’ve seen. Stick figures: is there anything they can’t do?