I'm not an economist, so I may well say something stupid here. But I am glad, actually, that the House voted down that bloated, ugly, vague piece of legislation that has gone by the name 'bailout'. What I think should really be done is a quick and extensive imposition of transparency across all the ailing areas of the financial sector. Contrary to popular belief, credit crunches do not arise because there is a lack of money. There is no dearth of lending power; there is a dearth of lending will. Credit crunches arise because there is a lack of good information. Banks have the money, but they are afraid to lend it out (particularly at present to each other) because they don't know what's going on. Contrary to what one would expect, cash is not the lifeblood of finance. Good information is, and how easily cash flows depends entirely on how available good information is. So pouring more cash into the system is simply treating the symptom rather than the underlying illness; the real problem is that people are having difficulty untangling the good investments from the bad. Good investments then suffer as well as the bad, and the whole system comes to a relative standstill until banks can get the information that allows them to make good judgments about whether someone can be treated as an acceptable borrower or not. I doubt that this would be enough on its own at this point (for instance, I think you would have to expand temporarily the capital available to the FDIC, one of our most competent finance-related government agencies, which already has powers directly relevant to certain aspects of this turmoil); but it seems to me that it's this, and analogous measures, that should be the focus. Banking is an act of the human mind, or, rather, the joint action of a lot of human minds; credit crunches are the result of widespread confusion among those minds. You don't cure confusion with money.
In any case, my distaste for the legislation was due primarily to the ugliness of it. Did anyone seriously think that the proper response to economic troubles was to expand, on a massive scale, the powers of the executive branch? That you could propose state intervention on an enormous scale and not get a populist backlash? That you can just throw oceans of money at it and be sure it will go away? If nothing else, the heavy-handed, top-down approach with which this has been handled has virtually guaranteed that any virtues of the plan, if there were any, simply were not communicated at all to the American people. I never heard of them. So is it any wonder people put their foot down? This isn't a matter of economics; even if the plan is the real salvation of everything financial (which no one claims it is) the way it almost went through was horrible, horrible politics.
