This Isn't Like TARP

 | Dec 21, 2012 | 7:46 AM EST  | Comments
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We're stuck with bad templates: TARP votes one and two and the Grand Bargain No Bargain moments of 2011.

These two Washington-orchestrated calamities caused the stock market to plummet each time, which then helped get a deal done.

Anyone who remembers the chaos after the failure of TARP to be passed knows that a 7% drop can occur when Congress chooses not to save the Republic's banks.

The failure to raise the debt ceiling or come up with anything responsible led to a 19% fall until we got something that worked then, but isn't working now. We were paralyzed by the possible ratings agency downgrades and when we got one we thought, somehow, it was the end of the Earth.

It wasn't.

Bonds did the opposite of what we thought and staged a remarkable rally. In that sense the selloff was about nothing.

I think that these two analogies, which are being trotted out quickly this morning after the failure of Plan B, simply don't work.

First, the hated TARP came at a time when there was a run on the banks. You could argue that your ATM might not even have worked if that didn't pass. That one was huge.

Second, the debt ceiling deal turned out not to matter, at least when it came to the ratings agencies. It was, alas, almost much ado about nothing. This time around it would not shock me if the president just raised it himself and accepted a court challenge. Bills need to be paid, that's the law. One law -- that the Congress has to approve a debt ceiling raise -- conflicts with another. The payments that the federal government must pay on time.

Now I am reading that this failure of Boehner's Plan B is the equivalent of both. You can almost take an average of the two and arrive at what we are supposed to be done, call it 12%. And yes, those are precisely the numbers I am being told we will fall.

Now there are several things are work here. First, I don't know anyone who really thought the GOP would ever vote for a tax increase, period . Grover Norquist has made most Republicans sign a pledge. They will, according to Norquist, be challenged in the primary by Tea Party members. The pledge will not be broken.

I have thought, ever since I came back from Washington not that long ago, that it was clear this meant there could be no deal. We had hopes there would be another Grand Bargain driven this time by the president's big win, but these Republicans won regardless of the president. He means nothing to them. Nothing at all.

So, now we go over the cliff. I believe once Americans have seen their truncated paychecks -- both the people who are paid weekly and the ones paid monthly -- talks would begin in earnest to make some sort of deal to cut taxes with the Republicans actually leading that fight, urged on by Norquist. So Boehner's gambit was always a charade.

So, why should we sell off big on a charade? The Super Bowl plan is in effect. My take, the odds always favored no deal. We aren't going to get a deal. We fall of the cliff.

What gets repealed? The whole 7.5% gain since the November lows?

Nah, I think the gain from when there seemed to be a deal last week, call it about 2-3%.

We always overdo it intraday, so it could be more. But the idea that "suddenly" there's no chance of a deal is pretty ludicrous.

The GOP will not vote to raise taxes, just to cut them. And I actually expect that to happen because Norquist will urge them to do so.

If it doesn't? Well, we won't know that for another month. And that's how it will go.

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