OK, I can understand the sentiment that we should not bail out those who got us into this mess, thereby encouraging further irresponsible behavior down the road. But the fact that the arsonist is among the people trapped inside the burning house is no reason not to put out the fire. Much more is at stake here than the mere survival of a few banks who made a few boneheaded bets.
Because real estate assets were overvalued, and risks inherent in mortgage-backed securities undervalued, many financial institutions are undercapitalized and have had to adjust their balance sheets, leading to cash shortages and downgrades, which in turn lead to a general lack of lending. The pinnacle of this "credit crunch" came last week when the commercial paper market all but came to a grinding halt. Commercial paper is short-term debt which is literally the grease that lubricates the wheels of our economy. Manufacturers borrow money for a day in order to pay subcontractors for costs which they will recoup tomorrow when they sell the final product to the end customer; retailers issue commercial paper to pay suppliers while they wait for cash to come in from sales; and so forth. If our financial institutions cannot get bad assets off their books and recapitalize quickly thus freeing up cash for lending, then commerce is at risk of breaking down.
In other words, all of this nonsense about Wall Street versus Main Street is hogwash. Main Street has always been inextricably linked with Wall Street. One way or another, Main Street will end up paying a large part of the bill for Wall Street's misdeeds, whether by way of a bailout or by seeing its savings and its income dwindle towards zero. So, while the proposed bailout plan is far from perfect, it at least represented the most realistic workable compromise and one that was unfortunately necessary.
I know my 401K has already dropped more than my tax share of the $700 billion bailout would have been. The question is whether voters will see that connection and punish House Republicans for their failure to either craft a more palatable deal or sign on to an imperfect but necessary rescue package. Never mind his alleged skill in "reaching across the aisle", for all of McCain's self-proclaimed leadership and crisis management skills, his parachuting into Washington still didn't manage to convince his own party to support the government's plan. In effect House Republicans sent both Bush and McCain a big "Fuck You!" today.
PS: This episode of "This American Life" from Chicago Public Radio is still the best summary of the entire subprime mortgage mess. Do yourself a favor and listen to the show online.
[UPDATE:] File this one in the What-the Fuck?! Department: If you thought this election campaign couldn't get more surreal, get a load of this:
"Barack Obama failed to lead, phoned it in, attacked John McCain and refused to even say if he supported the final bill," McCain adviser Douglas Holtz-Eakin said in a statement after the House of Representatives voted 228 to 205 against the plan.
That's right. Barack Obama was supposed to lead the opposite party's House Representatives to support a plan crafted by Bush's cabinet members! I guess when you're morally (and financially) bankrupt you look to the other guy to lead your party.
[UPDATE 2:] It seems that opposition to the bailout plan was particularly strong among those House Republicans fighting a close race for reelection this year.