DAVID SKINNER Followers
Lindsey,", "Lawrence B.
EDITORIAL Leaders Without Followers Just over a week ago the collapse in credit markets forced the secretary of the Treasury to assemble a bipartisan group from both houses of Congress to...
...On Friday a similar run began on Wachovia...
...On Thursday night the FDIC did a forced sale of Washington Mutual to J.P...
...When the people atop the commanding heights of the economy think that they know best, and their followers’ concerns are ignored, problems inevitably follow...
...Senator Richard Shelby, deeply suspicious of the Paulson plan, left the meeting early and declared there was no deal...
...The plan had a commanding heights problem in the Congress as well...
...In this environment, not removing the deposit insurance cap could be a recipe for disaster, more than undoing any possible benefi ts from the legislation...
...Ultimately the bill will be a missed opportunity...
...But it was hard to fi nd an ordinary member who exuded confi dence...
...It was to be followed by a photo opportunity with the current president and the two men who might succeed him collectively blessing a bailout package...
...Nonetheless, the president arranged a seal-the-deal ceremony for Thursday afternoon at the White House with the congressional leadership and both McCain and Obama present...
...It was not to be...
...Thus stands the state of governance of the greatest economic power in the history of the world...
...We can only hope that America will be spared relearning this lesson of history, too painfully, this time around...
...There is a good case that could be made on that score, but it hasn’t been...
...No one with experience in these matters believes the Treasury purchase plan is workable...
...Credit markets seized up again on Wednesday, even though stocks stabilized...
...The key benefi ciaries are to be the very largest New York-based fi nancial institutions and a few billionaires like Warren Buffett and Bill Gross...
...The president gave a prime-time speech to push the bill on Wednesday night...
...It will take weeks, maybe months, to set up—not something that makes sense when the country is allegedly teetering on a precipice...
...Equity markets crashed...
...He set off a mad scramble to come up with the barest outlines of a plan on Saturday followed by two Democratic outlines, one for the House and one for the Senate, on Sunday...
...So, when Henry Paulson and Federal Reserve chairman Ben Bernanke began their gauntlet of testimonies on Tuesday, the mood was intensely skeptical, even bordering on hostile...
...Eighteen billion had left WaMu in the days leading up to the purchase...
...The Democratic leadership, including committee chairmen Barney Frank, Chris Dodd, and Chuck Schumer, were enthusiastic...
...The Democratic congressional leadership and the White House have had a “Continuing Resolution” strategy in their back pocket all along...
...It was a good performance, but on Thursday morning it wasn’t any easier to fi nd Republican congressmen who supported the plan...
...Buffet even said as much...
...The plan was to roll goodies for the auto industry and other special interests, a “safety net” package, and the latest version of the Paulson plan in with authority for the government to spend money after midnight on Tuesday...
...The central problem of the deal was that it takes a commanding heights approach...
...Obama headed for the Mayfl ower Hotel to hold his own press conference...
...Democrats announced they had an agreement amongst themselves, but their rank and fi le were decidedly not on board...
...The alternative would be a government shut down...
...What had not been explained was how bailing out Wall Street would also help them...
...The plan, moreover, should have been accompanied with measures that would stabilize the banking sector and prevent any possiblity of a bank run...
...The public saw it as a bailout of Wall Street...
...He plunked down a cool $5 billion to buy preferred stock yielding 10 percent in Paulson’s old fi rm, Goldman Sachs, saying he was confi dent that Congress would pass the Paulson bailout bill...
...By Monday the 22nd, it was obvious to markets and most other observers that, when it came to the plans, there was not a lot of “there” there...
...Still, as of this writing on Friday night, a bill was almost certain to get passed...
...Unintended consequences multiplied...
...But the greatest commanding heights problem was that the plan had virtually no public support...
...Lawrence B. Lindsey, for the Editors...
...EDITORIAL Leaders Without Followers Just over a week ago the collapse in credit markets forced the secretary of the Treasury to assemble a bipartisan group from both houses of Congress to sell a recordsetting government-bailout plan of the fi nancial industry...
...By Thursday stocks had rallied on expectations that Congress would pass a bill by the end of the weekend...
...Trouble was no such plan existed at the time of the meeting...
...Congressmen reported recordbreaking email and phone calls from constituents, running as much as 300 to 1 against...
...And on this basis politicians claim that what is needed is more regulation by government...
...Morgan just to avoid the potential disaster of the bank runs that would follow if uninsured depositors were not protected...
...The Democratic leadership focused on mocking McCain, blaming him for the failure, a narrative that the media parroted, ignoring the fact that if what the Democrats claimed was true, they had the votes to pass the law...
Vol. 14 • October 2008 • No. 4
