For in the meantime, the chaos they've created by coming to the table and then throwing a fit works to their disadvantage. Each time a deal is close to done and then gets scuppered, the market (and its many participants) freaks out. Huge quantities of wealth are destroyed. The markets fell about 8 percent after today's stunt, likely wiping out close to $1 trillion in wealth. In so doing, they're turning off whatever base the party had left on Wall Street and likely closing off a huge source of campaign cash. Asked for his evaluation of what took place today, Lawrence Fink, the CEO of asset management giant Blackrock, said, "Major disappointment came from the Republican side." A Republican congressman who shows up for a fundraiser in Manhattan this week is likely to get tarred and feathered. In some congressional races, I suppose financial dislocation and bank failures could plausibly be good news for Republican challengers—but only if the challengers can pin them on the incumbent Democrats.
If you were in Congress, would you have voted for this plan?
Yes. Last weekend’s bailouts of European banks highlight the fragility of the global financial system and how far and how rapidly this problem can spread. A financial meltdown would severely impair the ability of households and firms to obtain the credit necessary to continue funding ongoing operations and spending plans.
Based on the “financial accelerator” economic model I developed in conjunction with Ben Bernanke [chairman of the Federal Reserve Board of Governors] and [NYU economist] Mark Gertler in the 1980s, my recent research suggests that even prior to this September’s events, the financial crisis was creating a drag of about 2 percent on GDP growth. Since then, things have gotten worse, and I anticipate that even with the bailout, we will see a mild recession in the coming year. However, without a bailout, it would likely be a severe global contraction. While people can argue over the details of the plan, it does put in place a mechanism by which the government can intervene to alleviate the systemic risk associated with this financial crisis.
In the short run, the bailout will unfreeze the interbank lending market, the commercial paper market, and other key financial markets required to finance short-term lending. This will reduce the cost of credit to consumers and firms and allow them to obtain financing that would otherwise be unavailable. This, in turn, will alleviate pressure on the economy and reduce unemployment and increase growth. In the long run, however, taxes will be raised or spending cut to pay for this. Also, lending standards will be tighter, which ultimately is probably a good thing.
The leader lost the support of some of his closest allies in the House — including Iowa Rep. Tom Latham and California Rep. Devin Nunes, two drinking buddies who helped lay the foundation for Boehner’s political comeback in 2006.
Another Boehner ally, Rep. Thaddeus G. McCotter of Michigan, physically turned his back on the leader during a tense closed-door GOP conference meeting Sunday night.
People who were in the room said McCotter left abruptly after Boehner told members not to attack one another. Boehner tried to reach out to McCotter as he left. McCotter kept walking.
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