It's hard to turn on the TV these days. The news and images from Washington are like a train wreck. The height of hypocrisy: the crooks who made this mess posturing for a bailout on the backs of the taxpayer... looking stern and serious while they sit in gilded offices paid for by the investment banks and mortgage firms -- those that provided them with cheap loans to their poor constituents, while profiting handsomely from complex, opaque financial instruments that no one understands. While Washington slept the market ran wild, fueled by impossibly cheap money and overabundant credit. The Wall Street Journal ran a picture of J.P. Morgan the other day. He looks like a banker: stern, serious, practical. I wonder if he'd have given people $400,000 stated income loans; not a piece of paper to prove their earning or their ability to pay it back. That's what we did in the hyper-fueled lending world of Freddie and Fannie. You need to buy a house. Can't afford it? No problem, we'll cover you. Can you imagine J.P. Morgan doing anything so stupid?
And now comes the final indignity: the "bail out". The House yesterday decided not to pass a $700 billion bailout bill. They did so to prove that we are still a free market. They did so to save their reelection chances. They did so to protest the Bush Administration and their total mishandling of this crisis from start to finish. Whatever the reason: it failed. And rightly so.Does anyone really think that the Bush, Paulson or Bernanke have any idea what is really going on here? Fortune Magazine reported last week that the $700 billion number that Paulson chose has no analysis behind it:
"It's not based on any particular data point," a Treasury spokeswoman told Forbes.com Tuesday. "We just wanted to choose a really large number."
Wow. How comforting is that? We know that markets operate on psychology, and that the large number is designed to provide confidence in the market that the government has a big enough solution to take care of the problem. I understand that.
But I also understand something that George W. Bush and his team have never understood: this is also a political issue during a presidential election. The Bush Administration remains totally tone deaf to the concerns of the American people. While the $700 billion number may calm financial markets, it has shocked, dismayed and infuriated the American taxpayer.
Hello? Is anyone out there? Does George Bush really want Barack Obama to become president? It sure looks that way.
In fact, Bush's handling of this issue looks a lot like the war in Iraq before General Petraeus went to Baghdad. It looks incompetent, poorly planned and poorly executed. It looks just like the mess that Gens. Casey and Abizaid got us into, with American soldiers dying daily amid violence and chaos on the television. Total mis-management. The American people lost confidence in Donald Rumsfeld in 2004. And what did the President do? He held his course, kept Rummy on and took a beating in the 2006 midterm elections. Bush was shocked to take such a shellacking. He didn't understand the level of discontent among the voters then -- and he doesn't understand it now. Americans in vast numbers are angry at Washington. Mad as hell, as Howard Beale famously yelled out the window in the movie Network. And they aren't going to take it anymore.
Who will pay the ultimate price for this debacle? John McCain. He's been swallowed whole by this mess and his campaign will never recover. Yes, he miscalculated -- the whole "suspending his campaign" gambit backfired. Frankly, his instincts on the bailout were wrong; his behavior showed him as a legislator. A compromiser. Not as an executive who had to make a tough call in a crisis. He temporized and vacillated.
In fact, McCain missed a golden opportunity: He could have taken the momentum and initiative away from Obama and come out forcefully against the bailout from the beginning. He could have stood up in the debate and said:
I'm against this because I don't believe in taxpayers footing the bill for what is essentially a $700 billion entitlement program. Yes, I know the situation is serious and that we need to provide relief to the credit markets. But there is a better, less-intrusive way to do this: change the "market-based" accounting rules so that firms can revalue their portfolios to something that reflects their true intrinsic value. Provide loans and guarantees that the firms will pay interest on, etc. etc. etc.
But McCain didn't do that. He didn't see the opportunity for bold action and decisive decision-making. He could have put Obama in a corner. And with public opinion running 2:1 against the bailout, the polls would have been on his side.
In the end, this is the kind of crisis that either makes or breaks a candidate. The odds were against McCain from the beginning, but his handling of this issue has fallen short. He was dealt a bad hand by Bush and his bumbling lieutenants; in this case, running against Bush would have been smart for McCain. But it was the kind of "game changing" opportunity that comes about only once in a campaign. If you seize it, you win. If you don't, you lose.
So far, McCain hasn't seized it, and unless Palin pulls out a miracle against Biden and McCain can rally in the last two debates, the Republicans will lose on November 4.