Bob Reich's Prediction

The Stalled Deal

The Bailout of All Bailouts just got voted down, 228 to 205. There’s the expected partisan finger-pointing but House leaders will schedule another vote as soon as they can convince twelve of the nay-sayers, from either party, to approve.

Wild card: Angry voters who go to the polls in five weeks. Conservatives don’t want government to take over the free market. Liberals don’t want Wall Street fat-cats to get a free ride. And the more the public focuses on the bill, the angrier they become. (Polls show about a third of Americans in favor, a third opposed, and a third undecided; the percent in favor is growing slightly, but the percent against is growing even faster.)

Wild card on the other side: The Dow is dropping precipitously. Roughly half of all American families have some retirement money in the stock market. And even if they don’t own shares of stock, an increasing number are feeling the pinch of an economy gradually grinding to a halt. (This week’s employment report will not be very encouraging.)

Don’t expect easier sailing in the Senate. Fewer than a third of the Senate is up for reelection on November 4, but they’re all hearing from angry constituents.

Prediction: A scaled-down bill will be enacted by the end of the week. It will provide the Treasury with a first installment of $150 billion. Treasury can use it to back Wall Street’s bad debts with lend no-interest loans of up to two years, until the housing market rebounds. Or to invest in Wall Street houses directly, in exchange for stocks and stock warrants. There will be strict oversight. Congressional leaders will promise further installments, but with conditions calling for limits on salaries and relief to distressed homeowners.

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