Look who got bail

Let8217;s begin by giving the benefit of doubt to the House. Remember, that all 435 members of the House are up for re-election, which makes many vulnerable to their constituents8217; anger. The bill, no matter how good in theory is unlikely to yield real results before that crucial election8212;- none of the 159,000 Americans who lost their jobs will get them back anytime soon. So, it wasn8217;t going to be a selling point at electoral rallies. The situation, if anything, was the opposite 8212;public perception was dominated by the view that the bill committing a huge 700 billion of taxpayers money was going to bail out the Wall Street fat cats who caused the mess in the first place.

This perception was, of course, wrong. Congress had already amended Hank Paulson8217;s original three-page bill to a lengthy 110 pages which had strong provisions capping executive pay and banning golden parachutes for failed executives. It also gave Congress enormous powers of oversight. Rather than a bad bill it was a failure on the part of politicians to convey its content to the public, which caused the distorted perception. Granted, some Republicans

objected, in principle, to large-scale government intervention in the economy, but ideology isn8217;t usually the best guide in such crises. Remember, Japan did nothing about its failed banking system for a decade and 8216;lost8217; the 1990s to stagnation.

Moreover, it didn8217;t take long for constituents to phone their representatives to tell them that passing the bill was in the interest of the people at large. A financial crisis of this magnitude hits ordinary working class people and small business disproportionately as they are the ones who depend most on an easy and cheap flow of credit8212;-something which has completely dried up. Somehow, a majority of the House8217;s members didn8217;t understand this.

Needless to say, markets tanked in the US and abroad in response to the rejection of the bailout plan. Having blundered, the House needed a bailout. The US senate started this process by passing the bill with a comfortable majority a day after the House rejected the bailout. There were amendments to the bill but only one related directly to the financial rescue plan8212;- the one raising the federal deposit insurance limit from 100,000 to 250,000. This, while bringing an element of calm to the consumers and banks 8212; people would have less incentive to run on a bank by wanting to withdraw deposits if most of their deposits are insured 8212; didn8217;t change the fundamental nature of the original 110 page bailout plan. Still, bipartisan Senate approval gave political insurance to nervous representatives.

That may not have been enough of a bailout for the House. So, a whole lot of other sweeteners were added to the bill to facilitate its passage. Most of these fall into what is known as the category of 8216;pork8217; in US politics 8212; spending programmes or tax exemptions aimed at very narrow interests. Here it was used, with some success, to encourage those members with constituency ties to these interests to vote for the overall bill even if they disagree with the core bailout package.

What else but wasteful 8216;pork8217; can explain a provision to grant excise tax exemption to the manufacturers of a particular type of wooden arrow used by child archers? According to Bloomberg this provision will yield savings of 200,000 a year to Rose City Archery in Myrtle Point, Oregon 8212; interests don8217;t get narrower than this! Or do they? The Emergency Economic Stabilization Act 2008 as the bailout bill plus pork is called also includes a provision for excise tax refund on rum produced in the Virgin Islands and Puerto Rico, as well as tax concessions in the construction of race tracks, duty suspension on wool products, and transportation fringe benefits to users of bicycles. All this and more at an additional cost of 110 billion to the US government. The taxpayer has ended up bailing out the House for its folly by paying for more than just for the bailout plan.

Whoever said that only politics in India is sordid and wasteful?

dhiraj.nayyarexpressindia.com