The Bailout Plan fails: Now what?

With the defeat (of at least round one of) the bailout plan, many are celebrating, Wall Street is panicking, but everyone else is wondering: where to now?

I'll admit I supported the passage of this bill, once it got past the ridiculous "no oversight by Congress or any judicial body" stage and acquired a few token protections. It wasn't a good bill, it didn't go far enough to cap CEO pay, nor add regulation to prevent a repeat performance of this mess, but it was better than nothing. With the bill, we would still get a bad recession. Without it, we get our first depression since the 30s. Not a Great Depression or anything close, but double-digit unemployment and more severe economic downturn.

But now that the bill was defeated, I'm not sure I would like to see it re-submitted. There should be Double Jeopardy for this bill; once defeated, it shouldn't come back like the villian at the end of the horror movie, again and again. The problem is that what's needed to gain the support of the representatives would not make the bill better and probably make it worse. Most of those who opposed the bill are Republicans, and they had argued for a huge capital gains tax cut and other irrelevant perks for wealthy investors. If that's what we're going to see added to the bill to make it more palatable, we should dump it right now.

Instead (since we *are* going to see another bill introduced; Washington isn't just going to throw in the towel), a totally different approach than the one Paulson suggested should be tried. After all, his $700 billion wasn't going to do anything that he isn't already doing along with Bernanke at the Fed. Just today $630 billion was flushed into the European banking system to help with "liquidity." If Paulson/Bernanke can throw around money like that under already-existing rules, why did we need to go through this hoopla to dispense the $700 billion?

During the (very brief) discussion of what to do about our banking/lending crisis, a few other basic solutions were proposed that fundamentally differ from Paulson's proposal. Wall Street didn't like them as much, and they'd probably work just as well or better, and that for me is two points in favor of them. The "Swedish" solution was one such proposal. Instead of just buying up "toxic debt" at some arbitrary price and hopefully breaking even on it when the market calms, the Swedes took over banks and made them partially publicly owned.

And there have been many other suggestions floated, running the gamut from Gabraith's recent multi-point proposal to a widely circulated email that suggests giving every adult $3,000 instead of giving it to Wall Street. At this point I don't care what's proposed as long as it's substantially different from Paulson's plan, which is only going to get worse during continued negotiations as each rep tries to add his personal pork to it.

It's clear, despite Wall Street's decline today, that we can wait at least a few more weeks before passing legislation. It doesn't have to be done RIGHT NOW OR ELSE! We continue to see bank failures, takeovers, and money flying around the continents, with the Fed doing what it was doing before it became an official "crisis." In fact, all that's changed is the Fed and Bush are no longer saying the worst is behind us. That was a lie, or ignorance, but we were in a crisis six months ago, and no legislation was passed. We can wait a while longer to get something done right.

Or at least, refrain from doing it the wrong way as much as possible.