There could be no better testament to the historic ineptitude and failure of the Bush administration than that two-thirds of the members of the president's own party rejected his administration's plan to deal with the worst financial crisis since the Great Depression.
It is true, House Speaker Nancy Pelosi did give a fairly partisan speech right before the vote was called, leading Minority Leader John Boehner to accuse her of alienating Republicans. But her speech could just as easily be interpreted as an attempt to stiffen the backs of unwilling Democrats -- and she did deliver most of her caucus. The Republicans killed the bill, and they are going to have to live with the consequences.
What will those consequences be? At the closing bell, the Dow Jones Industrial Average was down 777 points. Such a dramatic loss in shareholder value will undoubtedly increase stresses to the breaking point on a vast array of financial institutions. And it surely will not relieve tensions in credit markets. If banks were unwilling to lend to each other last week, this week they will be hiding their cash at home under mattresses.
Time's Justin Fox made a very important point this morning before the bill failed, explaining why the U.S. stock market opened in a sour mood after the weekend, even though the widespread expectation was that the House would pass the bailout bill. In just the last 24 hours, he reported that "four major financial institutions have had to be bailed out by taxpayers in the U.S. and Europe." The four: Wachovia, a U.K. mortgage lender, a German mortgage lender, and Fortis, a Dutch-Belgian insurance and banking giant.
One way to look at the "stabilization" of these institutions, wrote Fox, is as the culling of the weak from the herd.
More culling is to come. In the natural world, that wouldn't be such a bad thing. The herd grows stronger as the weak die off and the strong breed. But the global financial system does not appear to be an exquisitely balanced ecology. It seems much more comparable to a house of cards where you take out one support pillar, and it all comes crashing down.
The question we are facing right now is whether it is better to let an unstable edifice implode, and then attempt to build a new and better structure out of the rubble, or whether there is still a way to shore up the creaky old barn while simultaneously replacing the foundation. The House of Representatives today said: Let it burn. Partisans on the left and the right seem happy to watch the flames.