The Bailout Failure: Let's All Take a Deep Breath

Last Updated Sep 30, 2008 1:11 PM EDT

deep_breath.JPGMonday could not have been more dramatic. After more than a week of dickering, a Wall Street bailout package finally got far enough for real consideration. It lost by merely 23 votes in the U.S House of Representatives. The Dow quickly screamed bloody murder with a loss of 777 points, the worst fall since the 9/11 terrorist attacks.

I don't know about you but I am of two minds about the bailout. My gut says that a bailout is wrong, it's not the market way and why should taxpayers like me foot the bill for the ills of rich and reckless finance jockeys.

At the same time, a lot of serious people in economics and business whom I respect tell me that this is a must do. Stakes are too high. I was on the telephone with a financial analyst in New York when the vote came in and the Dow tanked.

"People in Congress just don't get it," he told me. "This is very, very serious. If there's no bailout all credit will gum up. It won't be available. Payrolls won't get paid. And in three weeks time, you could have General Electric going down instead of Wachovia or WaMu (Washington Mutual)."

To be sure, I thought the latest version of the bailout was a definite improvement. The first version by Treasury Secretary Henry "Hank" Paulson was just too wild and crazy. There were absolutely no checks and balances for one of the biggest giveaways in American history.

The new version would have two oversight committees and require Congressional approval for two tranches of funding. Limits were put on grossly obscene executive compensation for companies benefiting from the program. Some, but limited, attention was put on homeowners' mortgages payment dilemmas.

One reason the bill went down in flames today is timing. Congressmen up for re-election in a little more than a month don't want to get with the program only to get scalded by irate voters. The bailout is hugely unpopular and it is very easy to see why. For some in Congress, a "yes' vote could mean they soon lack employment

What's needed is a long view balancing the understandable negativity of the situation and the solution with what must be done. Sure, it is truly appalling that President George W. Bush is such a leadership failure that his own party is deserting him. But it's necessary to get beyond that and see if the bill can be tweaked to get it passed.

Speaking of timing, there may be a short-lived silver lining. Congress is out for the next two days in observance of the Jewish holiday of Rosh Hashanah. Maybe this will provide a much needed breather.

Meanwhile, decision makers shouldn't don't get rattled by the Dow's one-day behavior or the scare headlines. There have been so many in the last two weeks that their impact is wearing off. If ever there was a time when thinking clearly and long-term were paramount, that time is now.

(Image by mishgun via Flickr, CC 2.0)