What is going on??

As I write this, the $700 billion bailout plan has failed and the DJIA has closed down over 656 points, or 5.89%. At one point, the Dow was down 738 points, the largest intra-day drop in history. Yesterday, I wouldn’t have believed it. The headlines indicated that after a weekend of negotiations, a compromise was reached in the House on the $700 billion plan to be voted on today. Finally, I thought, we’ll get this bill down the road to the Senate and work toward getting confidence restored in the markets. But in today’s world, shock is becoming the only constant. Normally, the big news today would have been the sale of Wachovia to Citigroup. Instead, the President held a press conference this morning at 7:35 am, before the markets opened, to urge the House members to vote for the bill. But in the end, congressmen from both sides worried more about their own political futures than about the confidence of the market. The bill failed 228 to 205. Those who voted against it cited as their reason severe criticism of the bill amongst their constituents. Only 60% of Democrats voted for the measure, which to me is surprising. Why couldn’t Speaker Pelosi get a larger percentage of Democrats to support the bill? 95 Democrats voted against it. Only 12 of them were needed to pass the legislation. Only 65 Republicans voted for the measure, or 35%. So, neither party was united on this measure. Now, both sides are pointing fingers at the other, blaming them for the failure. Right after Nancy Pelosi failed to convince 12 Democrat members to change their ‘no’ votes to ‘yes’, the Democratic leadership held a press conference to make sure that they had the first word on assigning blame. They were shocked that they didn’t have more Republican support. On the other side of the aisle, Real Clear Politics reports that GOP leadership is pointing to an “exceedingly partisan” speech by speaker of the House Nancy Pelosi just minutes before the vote was to begin. From their perspective, this conveniently timed speech essentially turned the passing of the bill into a moratorium on the supposed Bush administration’s failed economic policies. I submit that the vote could have turned out differently had the speaker not attempted to turn this into a moratorium for political gain. Why couldn’t she have just kept her mouth shut?

Among those in the after-vote press conference was Barney Frank, who in my opinion shares a lot of the blame for the underlying factors facing the financial market. For all you nay-sayers out there, look at the recent reporting by the Wall Street Journal on this issue. The Boston Globe and others have printed similar stories criticizing government pressure, lead by Frank, to artificially lower housing mortgages and give financial institutions incentives to come up with creative, predatory loans. The lesson from this should be that government pressure on lenders, in the interest of affordable housing, cannot negate the high risks associated with providing loans to people who can’t afford them. Where is the accountability for Mr. Frank’s actions? Instead, Mr. Frank continues to point the finger at everyone else. Talk about blind to your own mistakes.

In the end, this failure is not good. The House should go back into deliberations immediately and stay until they work out a compromise. Nancy Pelosi and her fellow Democrats would be well advised not to attempt turning a future vote into a moratorium for political gain. Additionally, Republicans would do well to realize their principals of non-government market influence cannot save the economy today. The market didn’t reach this crises through a lack of government influence but largely through an underlying government pressure toward more affordable housing. So now it takes more government influence to correct the negative government influence of the past.

Let’s get this done now!!

Cheers,
Joel