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Author Archive: "Robert Kuttner"

Imagine These Guys Negotiating with Putin

So, what were they thinking over at McCain HQ?

Rick Davis: Chief, Steve and I have a terrific idea.

Steve Schmidt: We say we're suspending the campaign because of the economic emergency and the need for bipartisanship.

John McCain: So I can take more naps?

Davis: Sure, but that's only a side benefit.

Schmidt: We ask the White House to call an emergency meeting with you and Obama and the House and Senate leadership.

Davis: It showcases you as a leader.

McCain: But what's my position on the bill?

Scmidt: We'll figure that out later.

Davis: Here's the best part. We can postpone Friday's debate, using the emergency as an excuse…

Schmidt: …And reschedule it for October 2nd.

McCain: October 2nd?

Davis: That's the date of the Palin debate. We get to keep her out of prime time.

Schmidt: It's a three-fer, sir.

Davis: Actually, it's a four-way carom shot. You get to look presidential. You upstage Obama. You delay doing the debate during a week when the Dems are up. And we kill the Biden-Palin debate.

Schmidt: What do you think?

McCain: Is there any way that this could backfire?

Schmidt: No way.

McCain: Suppose it just derails the whole plan. Don't I look, ...

What About the Deficit?

Not very long ago, we were hearing that the federal deficit was a huge economic menace. The deficit-hawks were bipartisan. They included former Clinton Treasury Secretary Bob Rubin, the Blue Dog caucus of fiscally conservative Democrats, as well as Republican billionaires like Pete Peterson. And they were joined by legions of economists.

The main difference between the two parties was that the Republican deficit-phobes wanted to reduce the red ink by cutting social programs while the Democrats wanted to raise taxes on rich people. I wrote about exaggerated deficit-obsession in a recent American Prospect article, and in my book Obama's Challenge.

But suddenly, an administration that blames deficits for budget cuts in children's health, cuts in repair of decrepit infrastructure, education aid, green energy, and other useful outlays, is proposing to increase the deficit by $700 billion — more than four percentage points of GDP, because Wall Street made some bad bets. And Treasury Secretary Paulson blithely explains that this gargantuan increase in the deficit is no biggie, because some of it may even be paid back. What ...

Not So Fast

The respected Marist Poll has just reported that only 26 percent of Americans want Congress to act right away on the Paulson plan. Fully 68 percent say Congress should act, but should take the time to do it right.

This time, the people are ahead of the politicians. Paulson wanted this done in three days. Better to take three weeks. The need for urgent action was based on two assumptions that are not necessarily true.

The first was that Congress had to act — now! — or the whole system would collapse. But the assertion that the entire financial system is "frozen" is a gross overstatement. The parts of the system that are clogged up with bad mortgage paper are indeed on life support. But the rest of the system is functioning. Businesses are getting loans. Citizens are cashing checks. Home buyers are taking out mortgages. Investors are buying and selling stocks. If another big bank goes down in the next three weeks, Paulson and Bernanke will just do another ad hoc rescue, as they have done for a year.

The second assumption is that Congress is about to ...

Obama’s Immediate Challenge

There's a debate raging inside the inner circle of the Obama campaign: What will it take for him to cast a vote in favor of the Bush administration's $700 billion bailout plan?

The original plan proposed by Treasury Secretary Hank Paulson does not meet the set of principles released by Obama over the weekend — which includes substantial help for Main Street as well as Wall Street; no windfall gains to the bankers who created the mess, as well is limitations on future abuses. But political support for Paulson has been eroding from Republicans as well as Democrats, by the hour. At today's Senate Banking Committee hearing, he has been in the role of punching bag.

The bill could well depend on Democrats' support, since Republicans are distancing themselves from Paulson — either because they reject the entire idea of a bailout, or because they don't like the Democratic add-ons, or because they need populist cover with their constituents, or because they expect the plan to fail and don't want the blame.

It now appears that Democrats have enough leverage to get the administration to agree to several kinds of ...

Paulson Doubles Down

Support for Treasury Secretary Hank Paulson's $700 billion rescue plan is slipping away among both liberal Democrats and conservative Republicans — as well it should. The plan tries to bail out Wall Street, and does nothing for Main Street. Both Barack Obama and John McCain have expressed skepticism.

The Democrats will try to force the Bush Administration to accept a more fair and balanced plan, as they say over at Fox. So, all week, as Paulson presents his badly flawed proposal to Congress, warning of catastrophe if Congress fails to take it as written, there will be more drama on Wall Street. The Dow rebounded by something like a thousand points, on the strength of Paulson's promised bailout. As the Democrats and some Republicans express second thoughts, doubts are likely to infect financial markets as well, where the solvency of the system has been a day-to-day affair.

It adds up to a very high-stakes game of chicken. And critics of Paulson should not be afraid to insist that if a trillion dollars of taxpayer money are put on the line, we should damn well do it right. What does that ...

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