Why did it happen? The House of Representatives rejected the strong pleas of both Republican and Democratic leadership and voted “No” on emergency legislation described as crucial to the nation’s well being. Why?
We call the U.S. House the “People’s House.” The design of the Constitution created many more members of the House, compared to the Senate, and required direct election of members of the House at short intervals, every two years.
The House is the legislative branch that is suppose to be closest to the people. But gerrymandering has defeated the Constitution’s design, and now 90% of members of the House are in Districts considered “safe.” These “safe” Districts are both Republican and Democratic and members of these Districts usually can count on easily winning by margins of 65% or better. Members of these gerrymandered Districts seldom have serious competition from the opposing party and, therefore, tend to cater to the “base,” the most partisan element of their party. They are much more ideological in their thinking and much more partisan in their actions, than if they were required to answer to a more evenly balanced electorate.
The bail out legislation offended both the Right and the Left. Conservative constituencies demanded their representatives vote “No,” echoing talk radio, Lou Dobbs, etc. Liberal constituencies also demanded a “No” vote, saying that more help be given to “Main Street,” rather than so much help to “Wall Street.”
The 95 Democrats voting “No,” I’m sure, were mostly considered “Liberals,” while the 133 Republicans voting “No,” were mostly “Conservatives.” In Ohio Democrat Dennis Kucinich voted “No,” and Republican Mike Turner also voted “No.” Kucinich will defend his “No” vote based on Liberal principles, and Turner will defend his “No” based on his Conservative principles. And in their gerrymandered districts, probably neither Representative in the “People’s House” will need to really account for their vote in any in-depth way.
Kucinich and Turner found agreement to vote “No” by putting ideology above practicality. And in the wake of their vote, over $1.2 Trillion of wealth of stock market value vaporized.
The “People’s House,” should be all about making hard choices for the people’s good. The fact that Kucinich and Turner agreed in voting “No” is disturbing. Their unanimity demonstrates the triumph of ideology and partisanship over sound reasoning. It demonstrates the bankrupt state of our democracy.
They put ideology over government-induced irrational panic. Thank God!
Voting “no” was a brilliant move. They represented their constituents. THAT is proof of a thriving “representative democracy” (aka, republic), which is what we live in – not a “democracy” as you seem to think.
Whatever reforms and bailout are put in place should not be done hastily, lest the cure be worse than the disease.
Allowing Congresspeople to create safe districts for themselves is obviously a major problem with Democracy. They come to resemble the House of Lords. The power of money to control elections is the other major problem. Both of these obviously contributed to the vote.
The bailout was temporarily scuttled by conservatives who instinctively oppose government taxes and spending, and want to privatize everything and liberals who want to help the ordinary folks with bad mortgages. It appears that the economic system will not end tomorrow. With such a close vote it appears likely that some horse trading in local projects and earmarks will result in a bill passing. How wise that bill will be remains to be seen. After the high anxiety of the post 9/11 era lead to the Patriot Act and overestimating the danger posed by Saddam and his nonexistent, if dreamed of, WMDs, it is encouraging that the bailout train was slowed down. Perhaps if Paulson had not asked for absolute unreviewable power, he might have done better. Perhaps not. But they always do. My personal hope is that the Ds and some enlightened Rs hold out for things that will fix the mortgages that have caused the problems, so people can pay them and get them out as properly valued investment vehicles. They should also takie actions to prevent a reoccurence of these abuses by sound regulation of lending and securitization. Actually both Turner and Chabot have in the recent past supported the use of bankruptcy court to fix mortgages. This would, if enacted, signal to the divergent Wall Street parties that they can and should fix bad mortgages themselves, rather than squabble and gridlock among themselves. No bailout would get all the bad mortgages into government hands, and even the Treasury Department has admitted that the $700 billion figure is arbitrary. So there is some hope, although to the extent that Congress acts like it is used to acting, the results are likely to be either corrupt or inadequate.
Certainly there was no consensus that the bailout was a good thing. People can look at the meltdown and have radically diametrical views. Both sides have their own historical narratives based on their view of the world. Conservatives blame the unqualified borrowers (generally racial minorities) empowered by community activists, civil rights laws and Democratic politicians. Liberals blame the greed, exploitation and corruption inherent in capitalism run amok because the money in politics has weakened the ability to police the market. Politics can be the art of getting ones side’s hands on the levers of power and removing the other side. However there is also exceptional mistrust out there, and not a lot of community. Part of this is that above the local level people have little personal contact with or ability to evaluate professional politicians.
Add the constant if phony urgency of the 24 hour news cycle, dependence on the media to provide the community function formerly performed by friends and neighbors, the past exaggerations about Y2K and WMDs, and the high degree of uncertainty that everyone faces about their job, their future and the state of the world. It may not be surprising that people are wary.
We do have a great opportunity now to think about doing something different, resembling the Home Owners’ Loan Corporation of the thirties or what was done in Sweden during a similar crisis. If government buys the assets, it must set a price under pressure to pay off industry on one hand and to charge little enough to both let industry bear the risk of its bad behavior and to allow government to fix the mortgages and sell them without the taxpayers taking a huge loss. Other ideas could get credit into the community without rewarding investment banks at all, and perhaps get some public input into the highly important investment process.
And again now is the time to prevent the recurrence of another crisis by doing some sound regulating.
Stan, I concur now is the time to prevent the recurrence of another crisis by doing some sound regulating. That includes a lot of things. Limitations on the pay of Fannie Mae and Freddie Mac executives. A prohibition on any Congressional influence on who is hired at them. Elimination of the abilities of ACORN or other organizations to shake down financial institutions. Modification of the Community Reinvestment Act so that it does not require loans to those who cannot pay their mortgages.
The Community Reinvestment Act does not require anyone to make loans to those who do not pay. It doesn’t require much of anything. Depository institutions get rated based on whether they are making loans to the people they get their deposits from. 98% or so pass. Regulators can also examine CRA records when depositories acquire other depositories, and can in theory refuse to approve an acquisition. Almost never happens. There is kind of a “dance” that depositories and CRA advocate groups do together, but that’s most fo the good that law does.
The idea that ACORN “shakes down” lenders is an exaggeration, to put it mildly. ACORN is a pretty small organization. They occasionally have someone working in Dayton and maybe 1-2 people in Columbus. The idea that they forced the lending industry to make bad loans is absolute nonsense. Compare their resources with the billion and billions of dollars the lendiers have, even if some of them have been overstated by making bad mortgages.
Issues of disrimination are more raised or litigated under other statutes. The Home Mortgage Disclosure Act records information that shows that racial discrimination permeated mortgage lending so that high income African Americans were more likely to get a high cost subprime loan than lower income whites. HMDA does not get credit scores reported, but researchers who have been able to get that information have discovered whites do better than blacks with the same credit histories. There are laws that prohibit discrimination and credit.
Limitations of the pay of executives in general is probably a good idea. FNMA’s were overpaid as were many others. They may have been politically connected to Democrats, which may explain why Republicans seem to want to take their functions for their allies on Wall Street. FNMA was supposed to promote homeownership among lower than traditional income levels. This is not a bad thing, although such borrowers are obviously more vulnerable in many ways than traditional homeowners, both to economic downturns and to sophisticated mortgage salespeople.
The idea circulating in conservative circles that groups like ACORN used the Community Reinvestment Act to shake down the lending industry into making bad loans and then high profile Dems coerced Fannie Mae into buying them, and into giving these Dems campaign contributions for doing so, is absolute garbage. This story seems to fit a lot of conservative myths about how the world is, plus gives them a chance to blame all the people they despise (Jimmy Carter, Bill and Hillary Clinton, Barney Frank, Barack Obama). But it’s imaginary. For one thing the lenders in making bad loans were not depositories and were not covered by the Community Reinvestment Act. Most of these lenders’ securitizations were not done by or sold to Fannie Mae, which had limits on what it would securitize. The Community Investment Act has been around for a long time, but problem loans didn’t arise in large numbers until the Gramm-Leach-Biley law that repealed depression era safegaurds and empowered the investment banks. The lending industry figured out how to get rich ripping people off, taking advantage of a dysfunctional regulatory system and the ability of sophisticated insiders to fool both borrowers and investors. The “stated income” “no document” and other similar schemes were invented and expanded by lenders beyond their reasonable uses to cover lots of people . Securitizers set quotas for these, which encouraged brokers to use them to write loans and get commissions. Everyone got paid and no one suffered any consequences for a long time. You can’t blame ACORN, FNMA and the Democrats for that, although the latter could have done more to try to fix the federal maze of dysfuctional regulations. Still the Rs were in control with the most power throughout the period where subprime lending took off and then its dynamic spread to the prime market.
For the future you need to align the interests of all the parties to the loan, avoid letting originators get rich without accountability, and prohibit abuses.