Mark Thoma at Economist’s View has an extensive selection of links and snippets of the fallout in House Votes against Bailout Package.

[…] it’s not the stock market I care about, it’s employment and growth. Even if this is not a catastrophe, you don’t take this kind of risk with the economy. Even without a major crash, it’s likely a lot of people just lost their jobs, though they don’t know it yet. If the problems aren’t addressed, it is likely to constrain credit, that in turn causes firms to cut back on new investment projects, and as they do, employment and growth taper off.

Rant

Well, I do care about the stock market, as it seems to be a pretty good predictor of business cycles. I also care about growth and the economy. However, I also care about the future, and deficit spending is simply overspending at the expense of the future. We’ve added over $240 billion to the national debt in the last month. We have about $110 billion to go before we hit $10 trillion. We’ve borrowed more than we can pay back, as individuals, as businesses, and as a nation. Consumption is not growth, no matter what the GDP report says.

Anyone who didn’t realize that we’ve been headed for a recession has been high on credit, the most addictive substance ever developed by man. There is no way we could have prevented a recession, even if we could somehow rewind a year, knowing what we know now. Heck, I’ll go as far as to say that would hold true for a two year do-over, though the downturn would have been considerably softer. We hit peak credit, a once in a lifetime event. It’s a once in a lifetime event because the consequences hurt so much that you swear it will never happen again. Some people argue that it is a necessary consequence of fractional reserve lending. I’m not convinced, but I am convinced that we tried to blow bubble after bubble to avoid what would have been a mild recession decades ago. LTCM really was a blow up because of liquidity, not of solvency. Today’s problem is one of solvency, not liquidity. Banks aren’t solvent, consumers aren’t solvent, and if you want to get your money back with equal purchasing power, our government isn’t solvent.

It’s easy to blame politicians for today’s drop. They offered to throw the market a bone, only to give them the bone. Bend over, here it comes. But really, how on Earth could this continue? How could Apple substantially grow the amount of iPhones on the market when the average consumer is tapped out? Was the answer to give the consumer more credit? No. That’s as absurd as last year’s question: How can homes in Sacramento, CA support a median price of half a million dollars when they build thousands of new homes and have a median income of just above the poverty line? Was the answer to issue more credit and extend the duration of the mortgages? That’s ridiculous.

Before this slump is over, a lot of financial services professionals are going to have to find work in other industries. They’ll require retraining. If the airlines don’t get bailed out, a lot of workers in that industry will have to be retrained. A lot of useless government employees are going to have to find productive jobs, as the tax base just won’t support them. The auto industry got its bailout, so its day of reckoning has been deferred. There’s been a huge mis-allocation of human capital because of the credit bubble. If you really want a government bailout, spend the $700 billion on investing in the industries that will serve our next phase of growth, not the ones that are on the way out. Of course, I don’t actually endorse this, but it’s definitely the lesser of two evils, as there’s at least a chance that the new industries will benefit the future that we borrow our deficit spending from.

Debate Continues

Part of the fallout of today’s vote has been renewed negotiations. Bloomberg has the story Hoyer Says Senate May Consider Crisis Bill This Week:

“We will continue to work around the clock in a bipartisan manner to forge a solution to the serious threat confronting the economic security of millions of families,” Hoyer said.

Senator Mitch McConnell adds credibility to the bipartisan effort:

“We are going to stay here until we get the job done,” McConnell told reporters. “No action is not an answer.”

Yay?

If this was really a liquidity problem that $700 billion could solve (as Paulson indicated on September 18th), then today’s actions by the Treasury should have solved it.

My Confusion

I’m still confused as to why Democrats are upset at the failure of the bill (I’m more confused as to why Democrat lawmakers supported it). Most policy analysts state that the bill was not substantially better for the taxpayer than the original Paulson plan. The equity stakes were at Paulson’s discretion, the foreclosure protection was non-existent (but a lot of words), and the oversight lacked anything that could have made it effective. So the plan was essentially what the Republican administration proposed, just with a lot more words. Why does this upset Democrats?