Senate passes Wall Street bailout bill

A little while ago, I heard the news on NPR: Senate OKs Bailout Package, House to Vote Friday.

According to NPR:

The Senate approved a $700 billion rescue package for the financial industry Wednesday night, giving new life to the bailout by loading it with tax breaks and other provisions tailored to help ease its passage in the House, where an earlier version fell a dozen votes short Monday.

It's interesting how this thing keeps getting wordier and wordier as it goes along. Treasury Secretary Paulson's original proposal was about 3 pages long. The proposal rejected by the House on Monday was 110 pages long. The bill passed by the Senate just now runs to 451 pages. (Thanks to Marketplace for the link to the Senate bill.)

I'm still not entirely sure what I think about all this. But it seems that spending all this money on buying "toxic securities" from reckless investment firms might limit the amount of resources available to deal with other causes of the recession we're in.

As Dean Baker points out, the main problem is not insolvent banks, it's the loss of ability by consumers to spend because of the collapse of an $8 trillion housing bubble. This bubble was allowed to grow unchecked because "the folks currently in charge were out to lunch." Baker describes "predatory mortgages" foisted on "moderate income families, many of whom were black or Hispanic." This happened while "Henry Paulson, Ben Bernanke, and Alan Greenspan repeatedly insisted that there was no housing bubble as house prices got ever further out of line with fundamentals."

Baker continues:

The main cause of the economy's weakness is not insolvent banks and lack of credit; it's the loss of $4 trillion to $5 trillion in housing equity as a result of the bubble's partial deflation. Families used their equity to support their consumption in the years from 2002 to 2007, as the savings rate fell to almost zero.

With much of this equity now eliminated by the collapse of the bubble, many families can no longer sustain their levels of consumption. The main reason that banks won't lend to these families is that they no longer have home equity to serve as collateral. It wouldn't matter how much money the banks had, they are not going to make mortgage loans to people who have no equity.

Baker says that in order for the economy to improve, we have to find other ways to boost demand.

Which brings me to this post from Women's eNews about an economic stimulus packages that failed last week:

Almost forgotten Monday amid the wreckage of the $700 billion legislation to bail out Wall Street was the failure days earlier of a relatively small $61 billion bill that would have helped low-income people weather the stormy economy.

The "economic recovery" bill favored by Democrats quietly slipped into political oblivion on Friday. It would have pumped billions into infrastructure projects, extend unemployment insurance and beefed up subsidies for health care, food, housing and other programs. Nearly $600 million was envisioned for food subsidies to help offset steep price jumps at the supermarket.

As the majority of the nation's poor, women would have been the main beneficiaries of more government spending on many of the targeted federal programs, said Joan Entmacher, a budget analyst at the National Women's Law Center, a legal advocacy group in Washington, D.C. "It is very disappointing," she said.

(I think this is the same bill I mentioned in an earlier post.)

Baker calls for "directly injecting capital into the banks. The taxpayers give them the money and then we own some, or all, of the bank." One group of populist Democrats proposes a "no bailouts bill." Jonathan Tasini over on Working Life has a more comprehensive and radical proposal.

I wish I had a brilliant concluding sentence, but it past my bedtime.