The picture says it all. Two men who let the US Financial system slide into its worst crisis since 1932 have a plan to fix it. Consistent with their scandalous lack of oversight in letting this happen, the plan contains specific measures to ensure there is no oversight of their actions. How big is the problem? They don't know. What will it cost the US taxpayer? They don't know. Will their actions inject sufficient liquidity to solve the problem? They don't know. What will be the impact on the $? They don't know. Is a reverse auction the best way to determine the value of an unmarketable security? They hope so. What happens if the package isn't passed? They don't know, but it will be really, really bad. Will the same Wall Street types that made billions creating the problem also make billions from cleaning it up? Now is not the time for recrimination. Apart from their culpability in the crisis, their performance yesterday before the Senate was an epic failure on its own.
In all my years watching US politics, I've never seen an issue that so shattered party lines. There is everything from outright condemnation to strong support, from every corner of the fairly narrow US ideological universe. At the moment, opposition seems to have the upper hand. Opponents are tending to agglomerate around two issues. First are the "its an emergency, trust me" skeptics who remember the disastrous consequences of accepting the same arguments over Iraq. These are mostly Democrats, but include a significant minority of Republicans sick of being told what to do by a now-lame-duck Bush administration. Second are the free-marketers and practical skeptics . They either disagree on principal, or do not agree that the crisis is so dire, or doubt the proposed solution will solve the problem. In all cases, the fundamental problem is that Bush and his appointees have next to zero credibility among lawmakers looking at an election in six weeks.
The odds play is a Democratic compromise version of the legislation will passing next week. But there is so much political maneuvering going on behind the scenes that anything is possible. For example, the Presidential debate Friday evening may have a big impact on Democratic calculations, depending on the outcome.
For political theater junkies, this is the best show since Watergate. But I'm glad I live in Canada and have no $US assets. No matter how this turns out, somebody is going to pay. The weak link is the $US. I can't see any scenario where the $ doesn't get clobbered. The rosiest scenarios (like Bush's) just leave that part out. Fail. Epic Fail. Cosmic Fail.
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Update 3:58PM - Merill Lynch Canada just released an economic report that says Canadian households are just as overextended as US households at their 2005 peak and UK households are today. They warn that a similar melt-down is possible. True, but there was never a sub-prime mortgage industry in Canada and the real estate bubble was considerably smaller. But its worth noting the report after my smug words above.
