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Thursday, September 25, 2008

The Republican's Master Stroke

Let's see if I understand this correctly. The Democrats, ready to increase their advantages in both Houses of the legislature, are now in a position where they are in agreement with an unpopular President about a very unpopular and massive tax payer funded bailout. At the same time, the Republican side of the legislature has decided to totally oppose the President on the same issue.

Let's review what has happened so far today. At about noon, it appeared that the President had come to an agreement largely in principle with the legislature on the $700 billion bailout. Yet, if you looked at the details of the agreement, it was brokered by the likes of Chris Dodd and Barney Frank on the Democrat side. On the Republican side, the so called leadership was Bob Bennett of Utah. In other words, the leadership of the Democrats on financial issues were with the President on this. Meanwhile, some back benchers of the Republican Party spoke for their side.

Later in the day, the real leadership of the Republicans, folks like Richard Shelby, John Boehner, Eric Cantor, and Jim DeMint, came out totally opposed to this plan. One Republican went so far as to say if Nancy Pelosi wanted to pass this thing she should do it herself.

Keep in mind, that a significant economic package must be passed and soon. On the other hand, it need not be a bailout. In fact, the Republicans laid the ground work for an alternative a couple of days ago. Eric Cantor added another idea to this today.

Meanwhile a group of House Republican lawmakers circulated an alternative that would put much less focus on a government takeover of failing institutions' sour assets. This proposal would have the government provide insurance to companies that agree to hold frozen assets, rather than have the U.S. purchase the assets.

So, watch for the Republicans to push a counter proposal that is diametrically different from the bailout. It will focus on pro growth ideas, ending the so called marked to market (Newt Gingrich suggests a three year rolling average), and give distressed companies loans or insurance but force those companies to hold the distressed assets they bought.

This plan will be much more well received by the public because it doesn't put the tax payer on the hook for all these bad loans. Furthermore, in a stroke of political genius (one that will likely be taught in advanced political science classes for decades) they will be in a position to disagree with the unpopular President of their own party while their opponents are already on record largely in agreement with the same unpopular President. Finally, while the Democrats will likely attempt to stall this plan, they will, in the end, have no choice but to pass it because a package needs to be passed or the financial market will face a crisis of confidence.

As such, not only will the Republicans show real leadership, but the Democrats will also be on record as supporting a tax payer funded bailout that the public hates. On top of it, the Republican Presidential candidate will be in the middle of all of this while his Democratic opponent will be watching from the sideline. This bill is a game changer. Not only does it make McCain the new front runner for President, but it puts the Republicans in strong position to make serious gains in the legislature as well.

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