There are other reasons to doubt that the failure to pass the bailout, which seems more likely today than it did two days ago, will lead to the sort of catastrophe that bailout advocates have been insisting on all week.  Small banks are functioning and even thriving as deposits have started flooding into them, and credit from these banks does not seem as if it will be drying up.  The main argument that bailout advocates have had that has made their proposal sound slightly more attractive has been that the complete freezing of all credit would adversely affect the entire population, but if that is not true or significantly exaggerated a major part of both the economic and political rationales for this bailout disappears.  As Todd Zywicki at Volokh Conspiracy has noted, the CEO of BB&T Bank has also raised a number of major objections to the original plan and answers the question cui bono? that most observers have tried to dodge or ignore by insisting that the alternative is unthinkable:

The primary beneficiaries of the proposed rescue are Goldman Sachs and Morgan Stanley. The Treasury has a number of smart individuals, including Hank Paulson. However, Treasury is totally dominated by Wall Street investment bankers. They do not have knowledge of the commercial banking industry. Therefore, they can not be relied on to objectively assess all the implications of government policy on all financial intermediaries. The deicison to protect the money funds is a clear example of a material lack of insight into the risk to the total financial system.

That tells me that there is reason to doubt the dire warnings that we have been given.  It is also instructive that the bailout deal keeps getting delayed, and now seems much less likely to pass the House without the support of the House GOP.  The House majority does not want the bulk of the responsibility for passing the deal and wants political cover by having most of the Republican caucus vote for it.  As long as that seems unlikely, it is possible that the deal may not happen.  The obvious question is why the House Democrats would not want to take the lion’s share of credit for saving the day, if that is what the bailout will actually do.  One reason why they do not want to own this deal is that they are hearing the same overwhelmingly negative reaction from their constituents as the GOP members are.  The intensity of opposition to this proposal is as great as anything since the populist backlash against the immigration bill.  To give you a sense of how unpopular it is, Kansas Sen. Roberts’ office says that it has received fewer than a dozen calls out of 5,000 that support the bailout.  Even if support for the measure is closer to 30% of the public, the intensity of the opposition is much greater.  It is possible that this sort of grassroots rejection of the nearly universal establishment position is going to prevail again.   

I would add here that the record of bipartisan “achievements” and attempts at legislation over at least the last decade are a major contributing factor to the lack of public confidence in the administration’s proposal.  It may prove to be mistaken, but there is reason to think that an establishment that has been so impressively wrong about so many things over the years is wrong this time as well.  When the government has consistently abused the powers granted to it for addressing this or that crisis, and when the establishment’s interests seem to be consistently at odds with those of the vast majority of citizens, it becomes increasingly difficult to grant them any more power.  At some point the establishment cannot command respect because it frittered away whatever authority it had on blunder after blunder. 

Even so, the Democrats may be willing to back the deal if it appears to be a bipartisan move, as they hope that bipartisan support will reduce the backlash against them.  That is one of the main political benefits of describing things as bipartisan: creating more targets for blame.  That brings us to the more basic point, which is that the majority would pass the deal if its members actually believed it to be necessary.  Clearly, Pelosi wants the Republicans to provide cover because she cannot muster the votes on her side, and she can’t do that because not nearly enough have been persuaded by the argument the administration has presented.  Part of this is a resentment over being burned by past deception and incompetence, but another part is that the administration’s argument is not persuasive.  This goes beyond a lack of trust in this administration or in government as a whole.  The argument is not persuasive because it seems fundamentally wrong, which the administration’s own lack of credibility exacerbates.