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Congress is Laid Bare…it Ain’t a Pretty Sight Folks

Posted on | September 30, 2008 Time: 2:08 pm |

So why did the bill fail yesterday? I know that each side has run its dog-and-pony response, and they even removed any chance for originality by resorting to good ole’ fashioned finger pointing and lamenting about the “world we are leaving our children”. Yawn…

But why did the plan really fail? I didn’t ask to start Epiphany Investing during the most politically-influenced time our economy has seen in twenty years. But it happened, and as much as I would love to avoid the pink elephant, I am compelled to share my views, if only to encourage the most pragmatic response. Anyone who doubts that economics is truly the dismal science needn’t look further than the month of September.

Because we need to learn valuable lessons from yesterday, here are what I see as the drivers behind yesterday’s cataclysmic failure:
Reason #1 - The complexity of the whole economic landscape is very high to begin with; this particular crisis is off the charts.

Add to that the fact that so many of the key variables are in constant motion, and either side of the political/ideological aisle can pull out examples or “selective facts” to make their particular case. It’s a recipe for the ultimate misinformation disaster.

Reason #2 - The Plan was (and continues to be) poorly sold to “Main Street”. This is collectively everyone’s fault, from Democrats and Republicans to the mass media. Reason #1 obviously plays a big role here…you try explaining something you don’t understand.

Reason #3 - This is a binary event, but neither side can have its consequences readily understood. Option A is “bill passes”, and option B is “bill doesn’t pass”. If A happens, nobody can claim to know exactly how the markets react. There’s no precedent or chart that says, for example, the S&P will rise 15% by the end of the year, or that we’ll be flat and it would be a great outcome. On the flip side, there’s little specifics that can be provided for Option B, only gradients of “it will be bad”. Reason #3 gains strength because of trace elements of No’s 1 and 2, and the more folks don’t understand something, the more they tend to reject it.

Reason #4 - Human Frailty. We’ve now reached the bottom levels of the human character pole. At these levels, politicians who can’t concede that they simply don’t understand the situation listen to a special economic advisor. Each party has one, I guarantee you. This special advisor has gone to each party’s leadership in the past week and transmitted a vital fact about the Bailout Plan:

The Plan will not produce any obviously positive events for at least 2 years.

Why is this true, and why is it vital? The truth part is, I admit, a bit of a personal conclusion. But is it really unreasonable to assume that the broad economy won’t fully rebound for at least 12-18 months? It looks like we won’t hit “official” recession levels until the fourth quarter, and all the housing say price declines (bill or not) have yet to bottom out.

In just the past month a strong consensus is forming amongst top business leaders, top economists, and government officials that 2009 is going to be weak year for growth. This will keep mortgage assets below the levels that would show any profit in the Paulson Plan balance sheet.
The aggregate of all the reasons leads to one conclusion. Congressmen only have two year terms. Every single person that voted yesterday is either up for re-election in 30 days, or in one year and 30 days. And to a person, they knew that in the absence of the plan proving to be an immediate success, close elections might not go their way.

So at the last moment, facing what they saw as a choice between their job and the American good, chose to put self first. Most people I know would make the same choice. It’s what humans do. I was just hoping that the small percentage of us that would choose the American good instead would be the ones in our Congress.

Silly me.

Ryan Barnes

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