DC "Rescues" the World Tonight
As the clock winds down to tonight’s vote in the Senate on the latest incarnation of Treasury Secretary Henry Paulson’s request for authority to purchase up to $700,000,000,000.00 in “toxic” mortgage securities, a substantial shift has occurred in the language describing Paulson’s request. No longer do McCain, Obama, congressional leaders or President Bush refer to the “bailout”. Now, the legislation set for a vote tonight in the Senate is referred to by the aforementioned politicians and the media as a “rescue” instead.
The rhetorical shift comes at a critical time, about two days after Monday’s surprising bipartisan defeat of the bailout package in the House of Representatives. As the strong public outcry against and subsequent defeat of the unpopular “bailout” in the House demonstrates, the term bailout has negative connotations with the American public. This is especially so because the receipients of the $700 Billion will indisputably be mainly large financial institutions, in exchange for the “toxic’ mortgage securities and perhaps the loans themselves. Calls, emails and letters continue to come in from Americans strongly against passage at a clip of 10-1 against at least.
Both parties and presidential candidates appear to be wary of being strongly associated with a bailout, hence the shift in rhetoric. “Rescue” conjures up images of heros coming to the aid of a distressed victim. Both Obama and McCain exclusively used the rescue term today’s speeches, and neither directly attacked the other today. Perhaps the candidates have implicitly (or explicitly behind the scenes?) agreed to a brief truce in order to move the “rescue” through Congress this week. However, the basic thrust of the package remains the same: providing the Treasury Department authority to borrow up to 700 Billion Dollars to purchase “toxic” mortgages securities and perhaps the loans themselves.
One key issue which is presently unclear is whether Treasury will actually try to service the loans themselves in some respect. Obama’s comments, along with other congressional Democrats, appear to signal that if Obama wins the election, the federal government will buy up the loans themselves in part and push a strong loan modification program to reduce interest rates, payment amounts and perhaps the principal amount due. The government’s ownership of millions of mortgage loans will balloon the federal government’s bureaucracy exponentially, which is no guarantee of competent, let alone sound, management.
Another key issue is one of the additions to the Senate version – a provision to lift the cap on FDIC coverage from 100,000 to 250,000. As outlined here, Obama’s annoucement at 6AM Tuesday morning is the one specific policy proposal forwarded by Obama in the last few weeks on the economic crisis. Strangely, House Democrats, as guided by Obama, rejected the inclusion of the FDIC provision when House GOP negotiator Roy Blunt argued for its inclusion on Saturday night. Amazingly, as Jim Clyburn did yesterday, Obama surrogates continue to claim credit for the FDIC proposal today on the cable media, such as Democratic Wisconsin Senator Amy Klobuchar on CNN today. The Obama campaign’s attempt to use this arguable Obama flip flop on the FDIC provision as an example of Obama’s leadership could backfire in the days to come.
The political battle afterwards about the causes of the market crisis and who’s to blame will define the presidential campaign moving through the debate period, which ends when McCain and Obama lock up for a final battle on October 15 at Hofstra University. Obama will continue to blame the incompetence and culture of deregulation brought by eight years of the Bush Administration and excesses on Wall Street. McCain will continue to blame both greed on Wall Street and “evil” in Washington, namely the Fannie Mae/Freddie Mac role in creating the ponzi scheme previously known as mortgage securities.
Above all, if the bailout passes, whichever campaign controls the the media narrative about the passage of the “rescue” package will gain momentum. As McCain is struggling to keep within five points of Obama in most national polls, McCain needs to win the bailout battle to avoid a risk of seeing the race slip away to a double digit margin.