Bailout Fails: Now What

All right, we are just a couple hours after the failure of the bailout bill. It's disappointing if not surprising that each and every politician is blaming someone from the other party for its failure. The reality is that the leadership put together a bill that most of the rank and file didn't like and it didn't pass.

First, here is what happened to make it fail. From the Republican side, most of the rank and file were simply against the bill in principle. The bulk of the rank and file saw this as socialism and they couldn't vote for it. On the Democratic side, the rank and file saw it as a bailout for Wall Street and they weren't going to vote for it unless there was also something for Main Street. They wanted some combination of stimulus checks, moratorium on foreclosures, or some other giveaways to the folks.

Now, we are right back where we started. While we have seen a rather large drop in stocks (the greatest single point drop but not in the top ten on a percentage basis), we saw a rush to safety and bonds exploded at the same time. The financial world has NOT blown up as some predicted. Most continue to believe that something must pass, though no one is sure when or even if that will happen.

Here is the problem. If the Democrats are allayed and in the next bill there are more giveaways to the public, you will likely lose even more Republicans. If the next bill is the Republican supported pro growth bill, it is unclear if any Democrats are going to be in favor of it.

The Republicans, and John McCain in particular, need to come out strong for a pro growth plan. Both the Republicans and John McCain should emphasize that the American people have rejected the bailout. They should say that the people want a market oriented solutions, and that a market oriented solution is the one they will back. They should emphasize that if the Democrats insist on passing a bailout, that ultimately they won't stand in their way (filibuster) but they won't support it. If the Democrats want to come up with a bi partisan resolution though, then it needs to be a market oriented solution.

The Democrats are somewhat stuck. Most of their caucus has voted for this. A bailout is what most of the rank and file agree with. If they have a political play, I am at a loss for what it is. As for the Presidential candidates, it appears to have benefitted Obama so far, however, there is still plenty of opening. McCain still has the silver bullet if he wants. If he backs up the Pence approach, and goes all in on it, he can still come out on top of this issue. Barack Obama continues to say little about the bailout and it has worked so far, however that could backfire as well. The bottom line is that the issue continues to be dynamic and the short term effect is not necessarily the same as the long term.