The House of Representatives has just voted down the Bush/Paulson rescue plan. Republicans voted against the package by a majority of two to one. It’s hard to know what to make of this, or how to react. On the one hand, there is joy at the prospect of some of the corporate banks going under, and seeing the masters of the universe ending up in the poor house. On the other hand, a sense of reality dictates that the people who will really suffer will be the ordinary workers whose debt – especially mortgages – is controlled by these banks. It seems inevitable that a crisis in the financial sector – so dominant in Britain and America – will spread into a more general economic crisis. Why then have the Republicans voted like this?
I saw one Representative on the TV arguing in the debate that government guaranteeing banking debts was the first step on the slippery slope to socialism. The absolute belief in the power and necessity of the free market is far from dead and buried in the Republican Party. At the same time, the rhetoric of balancing the needs of Wall Street versus Main Street coming from the McCain camp has suggested that much of the opposition is to the specific deal, rather than such massive government intervention in principle. So where do we go from here?
I expect some form of the deal to be passed. What should be included in the American deal and any equivalent in the UK (or anywhere else for that matter) is not just a cap on executives’ pay, or a phased release of funds, but also higher corporate taxes and a government share in future profits. However, I can’t see that being included in America, and doubt Brown has the courage to push for it in the UK. I imagine that the American plan will ultimately involve the banking sector appearing to take more of the risk, whatever the reality. A few more might be allowed to go to the wall, so that the government can back a smaller number of healthier superbanks.
What is motivating some of the Republican response I suspect is the same desire to punish the banks that came out in George Osbourne’s remarks at the Tory conference today about the “age of irresponsibility” in banking. Once there is a feeling that enough of the fat cats have suffered, I reckon the deal will be done. There is too much political and financial interest at stake for the governments ultimately not to fold before the banks.