The sky is most definitely falling. And by the sky, I mostly mean the Dow.
The House has just derailed the roaring train that was Henry Paulson's bailout plan. As I write this, the Dow Jones Industrial Average is down some 735 points. That, if you're unfamiliar with the Dow, is pretty much "Holy Crap."
Better commentators than I have remarked on the crazy similarities between the run up to the Iraq War and the push for this bailout. The big difference between the Iraq war and the bailout is that, had the bailout failed, there would have been no instant reaction mechanism as big and vicious and real as the stock market. Suicide bombings wouldn't have doubled the second the vote failed. But with the stock market, the bills failure is itself an event. The stock market is kind of like a 5-year-old, and when you don't give it what it wants, it throws a temper tantrum. Sometimes even if you do give it what it wants it throws a temper tantrum. And when it does that, people lose jobs.
I'm on record as being a pretty big, and also piratey opponent of the bailout plan. The reason for this, is that I think it is nonsense.
But man, oh man, has Congress' response to that nonsense been ridiculous. What we've seen here is an epic, epic failure of leadership. Here's essentially what happened:
Henry Paulson: We have a crisis!
Congress: We agree!
Paulson: I have a terrible idea!
Congress: Holy crap, that's a terrible idea!
Paulson: Do you have a better terrible idea?!
House Republicans:....Well, how about-
Congress: Don't be stupid.
Paulson: Yeah, don't be stupid.
Congress: Okay, let's just vote on that first terrible idea.
And let's be clear on something: It's a terrible idea. We're talking about a plan that would have tripled the deficit in an effort to turn the US into a crappy investment bank. In fact, it would be the US government's express goal to become the crappiest investment bank in the world, since it would be actively looking for crappy loans that no one wanted. Then it would tell its investors (you know, us), that don't worry, those crappy assets will appreciate. Sure. Also, there is a bull market on bridges in Brooklyn.
On top of that there are all the massive questions on how you'd distribute this $700 billion. Do you try to buy the best assets? If so, what's the point? So you're purposely buying the worst assets. Do you overpay or underpay for them? If you underpay, you're hurting the companies you're trying to help. And hell, who even knows what fair value would be? The entire reason these assets are a problem is because no one wants them, hence they have no market value. But don't worry, Henry Paulson will sort it all out in three and a half months. And that's before we sort out who we buy from (I'm gonna go out on a limb and say Goldman Sachs, but after that, I mean).
And that's before we get into the idealogical arguments, the "are we socialist now" stuff, the populist indignation about helping banks at the expense of taxpayers, and all that. And frankly? That stuff's pretty important, too.
But none of that excuses our political leaders, who have split into two camps: Chicken Little, and Chickens With Their Heads Cut Off.
The Democratic leadership, and around 60% of House Democrats, fell into the Chicken Little camp. They didn't have the stomach to see the Dow fall, oh, say, 700 points, so they played ball. They worked with what they had, because they figured they had to do something. You hear this over and over again from reluctant bailout proponents. "We have to do something," they'll say, "Or it's Great Depression II."* And since no one had any better something, they tacked window dressing onto Paulson's befuddled idea until they felt comfortable with it.
(Note: I mostly approve of the shit they tacked on. Executive pay compensation is pretty dicey in practice, but good in theory, and the equity buy in is a good idea.)
The Republicans meanwhile, did the Chicken Little thing. They tossed out other ideas, and no one really got behind them. Then they decided to settle in and agree to the bill, and then they voted against it. Brilliant guys. Coherent leadership.
What no one had was the combination of brains, stature and testicular fortitude to stand up and say, "This is not what the American people want. But I have a better plan, and here is it."
Plenty of people have the brains - economists have been throwing ideas out there for two weeks now. But none of those ideas could gain traction without a major standard bearer, a plausible alternative to Henry Paulson. In other words, they didn't have the stature.
Roughly two people, by my reckoning, have that stature: Barack Obama and John McCain.
But as we saw vividly over the past week, neither have the testicular fortitude. Asked point blank in Friday's debate whether they would vote for the plan, neither would say. Guys, you're Senators. Deciding what to vote for is part of your current jobs. Nor would either say what they'd give up from their agenda to pay for the bailout. Both looked annoyed to even be answering questions about something they hadn't spent all summer focus grouping responses for.
I should add that neither Obama nor McCain could do it by himself. Witness McCain's disastrous trip to Congress for proof. Obama could have theoretically squeaked through a plan, but the Democratic majority is slim in the Senate, and includes Joe Lieberman. More likely, McCain and Obama would have had to get together with some economists, hammer out a new plan, and present it together in an unprecedented display of bipartisanship and selflessness in Presidential politics.
Also, there could be a bull market on subprime mortgages on bridges in Brooklyn.
So where does that leave us, exactly? Screwed, mostly.
We've dithered away our time. Every day we delay, the markets will descend further into their temper tantrum. Which means Congress is going to either run this same fucking proposal out there again (with new window dressing of course), or descend into more negotiations while Wall Street cuts off its own limbs one by one. What we need is leadership, and fast. And theres only one man who can do it.
Save us, Warren Buffett. You're our only hope.
I know, I know, Warren, you liked the old plan, and you like Hank Paulson. But you have to realize that his plan will never pass muster politically. It's up to you, Sage-ish one, to come up with a new one.
Warren, I'm begging you. You're a known Democrat, so Democrats will trust you, and what self-respecting, market-worshiping Republican could say no to the Wizard of Wall Street?
More importantly, the second you say you're on the job, the panic ends. The sky is no longer falling. Who do investors trust more than Warren Freaking Buffett? No one, that's who. Trust me, the second Bloomberg runs the headline, "BUFFETT: I'M ON THE CASE," the markets will go up.**
No one's going to ask you to officially ask you to do this Warren, but I'm asking you. Get in there. Come up with a plan, and shout about it. Pull a Boone Pickins here.
Your country is counting on you, Mr. Buffett. Lord knows it can't count on its leaders.
* Is it just me, or is invoking the Great Depression when you're talking about economics roughly the same thing as invoking Hitler when talking about politics? I thought so. While we're here, if we could retire the hokey "Wall Street/Main Street" vernacular dichotomy for, oh, say, the rest of time, I'd be much obliged. Come on. I don't ask much.
**And as long as I'm adding footnotes, you could probably replace Warren Buffett with Michael Bloomberg if you were desperate. This is all assuming, of course, that Jim Cramer is unavailable.