If this is the crisis everyone makes it out to be…

…why are so many politicians running around engaging in partisan politics? Lets go with Ezra Klein’s take on the situation,

And so the Republicans killed this bill. Without their cover, the Democrats couldn’t save it, because politically, they couldn’t take ownership of it.

If this situation is so bad (the Dow Tanking 700 points! OMFG!). How come they are playing partisan games? Could it…maybe not be as bad as they are telling us?

Oh, and while todays drop sounds bad, 770+ points down, there have been worse declines. Anyone recall October 19th 1987? The Dow dropped over 20% on that day compared to the 7% – 8% today? On Black Tuesday October 29, 1929 the stock market fell 12.8%.

As for the limited size of the drop I’m thinking that part of it is that the news of the financial crisis has been with us for about 2 weeks now so its effect has already largely been felt. Sure the money the Fed is pumping in helps, but I’m begining to wonder if a bailout really is all that necessary.

As for the rest of Klein’s post,

The question is what comes next. The Dow has plummeted. It’s lost 700 (Update — now back to 600) points in a single day. It’s the sort of freefall that suggests the markets may well begin to lock, that the continually available credit that oils the economy may dry up, with catastrophic consequences. The pressure from the market collapse could sober some congressmen into voting for the next iteration of the bill after having extracted some quick and cosmetic changes. Few want to be judged, either by their constituents or by history, for crushing the American economy beneath their own political cowardice. Alternatively, House Democrats could construct a new strategy: Rather than looking for bipartisan agreement on a muddled bill, they could take full ownership and seek partisan agreement on aggressive bill. They could move away from the bailout model and towards outright nationalization. Only Pelosi knows if she’s got the votes for that.

Can somebody prescribe a sedative, he appears to have become completely hysterical. The market has not collapsed, the American economy is unlikely to be crushed, and stock market was not in freefall.

See this is where many liberals, and conservatives for that matter, go wrong when looking at these kinds of things. They think that government intervention saved America from the Great Depression. The truth is a bit more…well dirty. Many of the government policies prolonged the depression. The most significant was remaining on the gold standard for so long. Remaining on gold standard had the effect of massively contracting the money supply. Prices were actually declining. On top of that the Fed stopped loaning to banks resulting in many banks failing. Sure the government ran deficits, but that is only because tax revenue couldn’t be raised fast enough to cover all the spending. In fact, in 1933 the top marginal rate was raised from 25% to 63% and personal exemptions were reduced. Another point to consider is the Smoot-Hawley Tariff that further reduced global trade. And while the Fed was contracting the money supply and driving prices lower the federal government was paying farmers not to produce to try and raise prices. What made the Great Depression great was its length and the government often selected policies that would lengthen the economic crisis not shorten it. Fortunately people like Ben Bernanke understand what went wrong during the Great Depression. This is why the Fed is pumping hundreds of billions into the market.

FILED UNDER: Economics and Business, Political Theory, US Politics, , , , , ,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.


  1. Dave Schuler says:

    The Republicans have miscalculated. Plans presented hereafter will be even less to their liking than this one. Their intransigence will be blamed if things go pear-shaped; if they don’t they’ll get no credit for holding their ground.

    It’s not fair; it’s politics.

  2. For some time now the Democratic leadership and presidential candidates have been working under the assumption that anything bad for America is good for them. Maybe this is why Speaker Pelosi worked so hard to have her cake and eat it too.


  3. Floyd says:

    “”why are so many politicians running around engaging in partisan politics?””
    Because, with RARE exception, they care more about their PARTY than their country!
    And with RARE exception,they would rather rule in hell than serve in heaven!

  4. Why is it the minority party in the house is getting blamed when the bill doesn’t pass? Is it just that hard to imagine the democrats actually in charge?

  5. DMan says:

    Why is it the minority party in the house is getting blamed when the bill doesn’t pass? Is it just that hard to imagine the democrats actually in charge?

    If you think the bill should be passed, then why wouldn’t it be the Republicans fault who voted in greater numbers against the bill than Democrats?

    If you think the bill shouldn’t have been passed, then why are you concerned with who is being blamed? You should be celebrating them.

    As for why Democrats are blaming Republicans? Unless I’m mistaken, they made their intentions clear, they weren’t going to pass the bill unless there was enough bipartisan support for it (I think something like 100 house Republicans).

  6. just me says:

    Why is it the minority party in the house is getting blamed when the bill doesn’t pass? Is it just that hard to imagine the democrats actually in charge?

    Pretty much my thought. The dems didn’t need the GOP to pass this bill. And they had over 60 votes form the GOP as it was-Pelosi failed to get her own party behind the bill before bringing it to the floor for a vote.

    But then there is still a part of me that believes Pelosi wants the economy in the tank at least until after election day.

  7. Tad says:

    I’ve said this in other posts here but I think it merits saying again. No political party has nor will ever take on all the risk for a bill of this nature. Big unpopular bills with big risks always always always take bipartisan support to pass.

    Besides do you really want the dems to pass a bill, because I can damn sure guarantee you it wouldn’t be nearly the compromise bill this one is. People seem to be completely unaware that there are plenty of reasons for both parties to dislike this bill. Any some of them, like the cost, are unpopular in both parties. Somehow the dems are responsible for a loss even though they were able to get 2/3rds of their people to vote for it. The blame is going to go where it mostly should a republican leadership that only managed to get 1/3rd of it’s people to support something they did and claimed was absolutely necessary. And John McCain is going to take flack for it as well.

  8. legion says:

    Well, the numerical difference between the Dems and Repubs in Congress isn’t that big. And 60% of the Dems voted for it, while only a third of the GOP did. That’s a failure of GOP leadership no matter how you slice it, and even tools like Chris Matthews are calling it a failure of McCain’s “leadership” also. Obama at least had the sense to keep his mouth shut this week & give McCain enough rope to hang himself with.

    That said, I’ve gotta take issue with some of the Lefty sites playing up the fact that over $1.1 trillion in value was lost in the Dow plunge today & comparing it to the still-ridiculous $700 billion of the failed bailout. That $700b would have been spread across all taxpayers, while the $1.1t is split among people with significant stock assets. While it will no doubt have an impact on a lot of Americans’ financial plans, the biggest pains of today’s losses will be felt by a much smaller percentage of much wealthier people – people who will still have 7-8 figures of personal wealth to fall back on.

  9. just me says:

    Big unpopular bills with big risks always always always take bipartisan support to pass.

    Then Pelosi shouldn’t have brought the bill forward for a vote, if she didn’t have the votes for it-period.

    Perhaps actually trying to be bipartisan would have helped, if they wanted bipartisan support.

    I think the reality here too is that there wasn’t voter support for this bill-and congress members at this point were also listening to their constituents-rightly or wrongly.

    I would also note that the GOP house members have all been voicing discomfort with the bail out-Pelosi should have been aware that she wasn’t going to get tons of GOP support on it-the house members were balking. She also apparently didn’t count heads in her own party.

    The GOP will get the blame, but the leadership here-and that would be Pelosi stunk-she failed on every measure.

  10. just me says:

    Oh and I will admit I am one of those people who isn’t 100% positive this bill is a good idea, and isn’t convinced it is a good bill or that it is going to do what they want it to do. There is a huge part of me that thinks in the short run it will hurt but in the long run it may be better to let these companies fail and deal with the down side of taking risks.

    The behavior of the congress-both parties is making me wonder if it is the crisis they say it is.

  11. markm says:

    Why did it even come to a vote if the votes were not there?????. Seriously. And don’t bother with the Pelosi partisan speech crap. The votes were NEVER there. The dem majority couldn’t do it on their own as they had a bunch voting nay…they had to know that going in.

  12. just me says:

    markm my guess is that in the spirit of bipartisanship pelosi assumed the GOP votes were there, but didn’t take the time to ask.

    I also wonder how many in the GOP were up front not going to vote in favor before the vote was called-the whole “Pelosi was mean to us” whine after the fact doesn’t convince me that all those GOP congress members bolted because of that-my feeling is that most of them were never there in the first place.

    I think it came to a vote because the cynic in my thinks Pelosi wanted it to fail.

  13. markm says:

    “I think it came to a vote because the cynic in my thinks Pelosi wanted it to fail.”

    I’ve read that on some other poli blogs but none with sufficient explanation of why…what is the benefit for losing this vote and having the markets tank???…is it some kind of “hero” thing where they’ll swoop in and save us when there is a proper crisis?.

  14. Rick Almeida says:

    Then Pelosi shouldn’t have brought the bill forward for a vote, if she didn’t have the votes for it-period.

    Right, since the President hadn’t been stumping for it every day for a week, and because the leadership of both parties hadn’t worked out a deal that they thought they could pass.

    Nah, all Pelosi’s fault. She’s both horrifically dumb _and_ has more power than the rest of the government and 10 wolverines combined.

  15. sam says:

    Why “bastards” Charles? Do you think the bill was a good bill — and therefore, for crass political ends, the Dems caused the defeat of this good bill?

  16. markm says:

    And if it’s that having the market in the tank until after the election being to their benefit…that would be a hard sell. I can see the tactic on paper but the real potential fallout isn’t worth it IMO.

  17. markm says:

    “She’s both horrifically dumb”

    I’ll second that.

  18. markm says:

    “If this situation is so bad (the Dow Tanking 700 points! OMFG!). How come they are playing partisan games? Could it…maybe not be as bad as they are telling us?”

    Could be…OR…I think someone noted it on OTB in another thread, there were something like seven attempts at reforming Freddie/Fannie and the like since 2001 or 2003 and every time it was slapped down. I’ve seen umpteen vids on blogs lately of B. Frank & Co. saying there is no problem nor crisis (back then). The OR part is kinda scarin’ me.

  19. Brett says:

    The Great Depression involved a great deal of stupidity in the government on multiple levels, plus a natural disaster (the Great Dust Bowl). How much of that, though, was Hoover’s fault as opposed to FDR’s? Smoot-Hawley happened in 1930, and I thought FDR severely weakened the Gold Standard until the Bretton Woods agreement in 1944.

  20. I am not a fan of the bailout but very reluctantly accept it. Unfortunately it appears to be just another crass attempt to score political points now. This is a very dangerous game they are playing.

  21. anjin-san says:

    Yea, that meanie Nancy Pelosi and her mind control rays…

    Guess the general level of whining will just get louder as the numbers get worse and worse for McCain.

  22. DL says:

    The first rule, if they want the public to support it, is to set up some kind of public oversight and and investigative arm (witrh supeana power)totally separate from Congress and the people who caused the problem and are pretending to fix it.
    (jail the game players -fire the complicite)

    Until this happens, the core caused won’t be changed at all. This bill is like giving your gambling brother in law $5000 because he didn’t pay the bad guys the loan payment. He’ll only need more later. Until he is cut off and suffers the cost of his actions it will continue, even bolder.

  23. Dave Schuler says:

    (jail the game players -fire the complicite)

    DL, could you expand on this a bit? I’m not aware that it’s being claimed that those who caused this were engaged in illegal activity. Are you suggesting that the criminal code should be expanded to cover all injuries, even when people are engaging in legal activities? We do have a civil code.