When the U.S. House of Representatives rejected the $700 billion Wall Street bailout last week, stock markets promptly plunged. Advocates of the plan were quick to blame opponents for the record drop in the Dow. Dire warnings were issued that incalculable damage would be inflicted if the bill were not passed. It was portrayed as a rescue of Main Street and something that was absolutely essential to avoiding Armageddon in the credit markets. The fate of the economy and the ability of families to send their children to college were hanging in the balance, we were told.
So it is with the largest single expenditure in the history of government, where nearly one trillion dollars was added to the taxpayer credit card with the stroke of a pen. Once again, Main Street has failed to satisfy Wall Street.
Aided by a battery of the best lobbying firms money can buy, Wall Street worked overtime to push for passage of the bill. And it worked. For its part, the Senate approved a bill on Wednesday with add-ons that were on an obvious equal footing with the emergency economic measure triggered by the most serious financial crisis since the Great Depression: $192 million for rum producers; $129 million for NASCAR tracks; $33 million for companies doing business in American Samoa and $6 million for toy arrow producers. Relief from the current crisis will come sooner for some than others, it appears.
Both before and during the House vote to approve the measure on Friday, the stock market soared. Only when it was passed did the Dow start to sink. By the close, it had erased all the day’s gains and finished down 157 points. Wall Street types, some from the floor of the New York Stock Exchange itself, were saying the bill wasn’t enough; more intervention was required. One analyst told CNBC “the idea of passing the bill was a lot better than passing the bill. The more time we had to digest it, the more we realized maybe it’s not such a great bill. Maybe it’s not going to rescue us.”
Another manager with more than $800 billion under management remarked “What we really need in addition to this now is a confidence booster from the Fed.” Don’t you just love Wall Street and its sense of gratitude?
President George W. Bush, who was quick to point out how much the Dow sank on the day the original House bill was rejected, had nothing to say this time about the Dow’s falling by over 300 points. And the bill that was so essential to getting things rolling for Main Street and freeing up those car loans? He said it would now take some time for the measures to have their impact. Why are we not surprised that what is revealed afterwards is not exactly as it was laid out in the case that was made for the bill in the first place? It is a familiar modus operandi for the Bush administration. Exhortations are issued like a thundering herd; equivocations follow soon on cats paws and in whispers.
Let’s be clear: the central purpose of the bill was to help Wall Street restore the glitter, glitz and gravy train to Wall Street. It is designed to help banks and bankers go back to the future and pretend that the mess they made never really happened. Nearly a trillion dollars can help rewrite a lot of history. It has much less to do with easing credit for Main Street, which will now require additional and more targeted government intervention if that problem is to be really solved. One more thing: The freezing of the credit markets was, in significant measure, the result of allowing Lehman Brothers to collapse without any steps being taken to mitigate the blow to other parties. That created anxiety in credit markets around the world. It is another example of how officials in the administration and at the Fed have misread significant signals on the road to this crisis and have taken many missteps along the way.
We expect the bailout will quickly rise to the status of the largest boondoggle of recent times. Huge sums will be misspent. Scandals, delays and ineptitude will emerge that hobble the plan, and it will become a great source of contention -even on Wall Street itself. Many will also manage to make fortunes for helping to “solve” the problems their industry created. It wouldn’t be Wall Street without the aforementioned trademarks.
The era that has culminated in the greatest economic crisis in several generations was the product of unchecked greed and excess on the part of those who have lost any sense of proportion regarding value and forgotten the respect the risk deserves. One might have expected greater due diligence on the part of lawmakers as to what the bill’s intentions were -and what it was actually capable of achieving. Instead, the country is being saddled with and called to underwrite a vague and half baked collection of untested ideas and untried schemes. It is bad enough when taxpayers can’t understand what Washington is proposing; it is a worry of considerably higher magnitude when it appears that Washington and its key players don’t understand it either.
Sill, the mother of all financial bailouts is what Wall Street wanted; what it demanded, what it lobbied for and what it got. It raised few doubts and insisted upon swift and immediate passage. Yet now it appears that even this is not enough for Wall Street. The crisis continues. The reason is simple: Wall Street is the crisis, which is why its disingenuous actions and those of its supporters leading to this thankless point are our choice for the Outrage of the Week.