Mortgage rates are unchanged, about 6.125 percent, just one aspect of completely frozen credit markets, hostage to a political moment without parallel.
The real economy is tipping over: New claims for unemployment insurance last week jumped to 493,000 from the 450,000 range. Orders for durable goods in August plunged 4.5 percent, double the forecast decline, and sales of new homes free-fell 11 percent.
When financial events move into politics, this column is relentlessly anti-partisan — not "non-", but anti. Nothing below is intended to favor either party or candidate.
Any large-scale federal financial rescue was certain to face political chaos. However, within hours of rollout last Thursday this rescue collided with two linked and disastrous forces that may yet defeat immediate rescue.
When Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke went to the political authorities last week, Bernanke’s "Tales From The Crypt" risks to the economy produced immediate bipartisan support for a rescue. Then and since, as all Fed chairpersons should, Bernanke has left legislative details to the Treasury Secretary. In disaster number one, not clear until hearings on Tuesday, Paulson was not prepared.
Most grown-ups know that it’s a mistake to ask a group to vote on an important proposal without prior discussion. You wouldn’t spring something big on your PTA, your HOA or your book club and demand an immediate approval. You wouldn’t ask a Cub Scout troop to vote on a field trip without some testing of the water.
Hank Paulson would. Hank has had 13 months to prepare a contingency plan in case market solutions to this crisis failed, and quietly to explore alternatives with Congress. Instead, he dumped on Congress a three-page sketch of a highly technical and questionable proposal. Tuesday’s hearings in the first minutes revealed bipartisan, confused, angry and incredulous Senators, and an ill-prepared Paulson.
This man, Paulson, has not only failed to advise us in the Senate, to develop his plans with us, to find out what we can sell to a wounded nation, he is not prepared to defend his idea! I watched part of the testimony beside an experienced trial lawyer, who after 15 minutes burst out laughing. I asked what was so damned funny; he said, "You can always tell when a witness has lost it — they just babble." Reports today are unanimous that one of last night’s negotiating sessions blew up when Paulson again bungled a description of his plan’s benefits and execution.
Over last weekend another force erupted all over the country: native, grassroots rage at a bailout that would leave all the big institutions in place — officers, directors, stockholders, all — and offer to taxpayers the absurd promise of payback from hundreds of billions of trash that the institutions couldn’t unload on anyone else.
You tell me your precious markets will melt down without this? Why do I care? Your stock market can go to goddamn zero on Monday, and then you can come down here with me to find out how it feels not to be able pay the bills. More than half of Americans have no stake in these markets, no savings at all; and there is a political price to be paid for extreme inequality of income.
This bailout, incomprehensible to civilians and many experts and senators, should have taken ownership in the institutions involved. Proper vetting to Congress months ago would have gotten that done. Instead, the same ancient American forces that ignited the Palin phenomenon, Jefferson-Jackson-Bryan-LaFollette populism, have mobilized an anti-bank, anti-smarty-pants, street-level riot not seen in modern times.
Completing the scene: President Bush’s nasty little speech on Wednesday, assigning blame and taking no responsibility; Senator McCain’s grandstand play on economic issues he’s said for decades he’s not any good at; and Senator Obama’s silent tip-toeing along.
Not pretty, but only-in-America: This flawed plan will probably pass by Sunday night, might work (50-50), might work in time (25-75), and we can always go to direct capital injection and ownership if Paulson’s Pratfall does just that.
Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at lbarnes@boulderwest.com.
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