The last time McCain at least pretended to suspend a political campaign (all for the sake of the greater good, of course), it was during our aggressive and unjust war against Yugoslavia.  Incidentally, it was right around that same time that I developed my profound dislike of McCain, which, as you may have noticed, endures to this day.  Back then, it was just as much a stunt as it is today, which he used to catapult himself into the national limelight and earn himself a reputation as some sort of bold leader.  As always, McCain’s pretensions to being a great statesman are always part of a cynical ploy to gain media attention and political advantage.  In ’99, there was the added bonus of boosting an unnecessary war, which became McCain’s m.o. from that point on.  It does make me wonder why McCain has been engaged in all of this sordid political activity for the last year and a half while our soldiers have been fighting in Iraq and Afghanistan.  I mean, doesn’t he know that there’s a war on and we must all “come together” as Americans?  After all, now is not the time for petty partisanship.

If the first SUSA poll on the question means anything, McCain’s grandstanding decision to suspend his campaign is a huge political loser, which I suppose some remaining McCain devotees will cite as proof of his integrity.  “It couldn’t have been a transparent political stunt, since it was such a politically stupid thing to do!”  Wait for it.

86% want the debate to happen on Friday, and half of respondents want the debate to go ahead as scheduled as a foreign policy debate.  Just 10% think it should be postponed.  There is a little more reflexive support from Republicans and conservatives, but what McCain proposes for Friday is opposed by just about everyone.  Only 14% agree that suspending the campaign is the right response.  46% say that it would be “bad for America” if there is no debate on Friday.  If we are assessing the political effect of this decision, I don’t see how it can be considered as anything but disastrous.  As far as aiding in negotiations on the bailout, McCain has nothing to contribute (perhaps he could call up Andy Cuomo for some advice) and will be there, as always, mugging for the cameras as part of his desperate bid for positive coverage serious effort to save America. 

Update: Palin is also suspending her part of the campaign, which will at least make her isolation from most of the media seem less ridiculous.  It will also give her some time to go find that evidence of McCain’s financial regulatory work that she has promised Katie Couric.  The McCain campaign is also proposing to scrap, er, postpone the VP debate.  Perhaps the strategy is to show how bad a meltdown looks like to encourage people to back the bailout. 

Second Update: Former Rep. Mickey Edwards (R-OK) calls McCain’s suspension of the campaign “somewhere on the stupidity scale between plain silly and numbingly desperate.”  That sounds about right.

In fact, some of the most basic details, including the $700 billion figure Treasury would use to buy up bad debt, are fuzzy.

“It’s not based on any particular data point,” a Treasury spokeswoman told Forbes.com Tuesday. “We just wanted to choose a really large number [bold mine-DL].” ~Forbes

I suppose we should be grateful that there are people in government who think multiple hundreds of billions still count as a large number.

For a candidate who is currently at war with the media, McCain certainly seems to believe his own press clippings if his suspension of campaigning is any indication.  Considering how badly the last week and a half has gone for McCain and how badly and unpredictably he has coped with the crisis so far, perhaps the best thing for his chances in November would be to suspend campaigning indefinitely.  The striking thing about this move is that McCain is now shouldering a large part of the responsibility for whatever legislation comes out of negotiations in Congress and he is pretty much staking his campaign on its passage and its contents.  Put it down to another example of McCain’s habit of winging things and not having a plan going from day to day, and then consider what it would mean for how McCain would govern.   

Of course, if the debate is cancelled, administrators at the University of Mississippi say that they probably won’t host it again later.

Update: Apparently, it wasn’t clear that this post was ridiculing McCain as a fool, so let me say it more plainly: McCain is a fool.

Mankind perishes. The world grows dark. McCain calls for a review board. ~Michael Gerson

This is apparently supposed to be an insult to McCain, who has expressed less than boundless support for the proposal to make the Treasury Secretary into financial dictator.  One doesn’t quite know what to say in response to Gerson’s complaints about cliche-riddled language and vacuity, except maybe to note that it takes such an accomplished master of both as Gerson to appreciate them so fully.  His complaints about the policy agendas of the two candidates are silly–Obama is running as a liberal!  McCain promises tax cuts!  Well, that’s because Obama is a liberal, and McCain is the nominee of a party that typically hates tax hikes. 

What Gerson does not know, or fails to acknowledge, is that the nominees he is berating represent, mostly for ill, precisely the sort of “centrist” positioning he so craves.  It isn’t really true that “[p]ost-Bush Republicans actively alienated immigrants and adopted simplistic, anti-government rhetoric that narrowed their appeal,” since the standard-bearer of post-Bush Republicanism favors amnesty, cap-and-trade and, in all likelihood, the mega-bailout in one form or another.   Whether or not other Democrats have turned against “free trade,” Obama actually has not despite primary season pandering to labor, and his tax policy is not all that terribly different from Clinton’s.  He has made noises about Social Security reform that have made the likes of Paul Krugman nauseous.  That doesn’t mean that he will be enacting any reforms if elected, but it does make clear how clumsy and misleading Gerson’s depiction of the candidates is.  What is so strange about all this is that the two nominees have both been much more “centrist” than their respective party bases would have liked, so Gerson should be pleased.  On the whole the positions they have taken to get there are bad ones, but there is no question that this election is a dream come true for someone with Gerson’s horrible policy preferences.  On top of it, the cautious, hedging responses of the candidates to the crisis and Paulson’s proposal are much more appropriate than the mindless endorsement of a terrible idea that Mr. Bush has already given and will give again tonight.

Can I just say that we are very fortunate that Gerson no longer writes any of Bush’s speeches?  Can you imagine the melodramatic twaddle he would have the President spouting tonight if it were up him?

McCain then looked around the room and gestured as if to welcome questions. The AP reporter shouted a question at Gov. Palin (“Governor, what have you learned from your meetings?”) but McCain aide Brooke Buchanan intervened and shepherded everybody out of the room.

Palin looked surprised, leaned over to McCain and asked him a question, to which your pooler thinks he shook his head as if to say “No.” ~Jonathan Martin

Steve Benen observes:

The McCain campaign apparently believes the Republican vice presidential nominee is some kind of child, under strict instructions not to speak.

It is inexplicable that they insist on keeping Palin, reportedly a “quick study” by most accounts, from demonstrating how quickly she has been able to get up to speed on various policy matters.  Assuming that she is capable of handling even basic questions, there is now much more to be lost by continuing to hide her away than there is if she starts giving answers and says something wrong.  The debate is eight days away, and she has answered just one impromptu question from a journalist up until now.  Her credibility as a national candidate has done nothing but diminish over the last three weeks since her acceptance speech, and the interviews she has given have not done much to bolster it.  At this point, even if she gave some heavily-scripted answer to a generic question it would be a dramatic improvement.  One week from tomorrow she will have to follow up McCain’s debate performance and make a persuasive case for herself and the campaign on national television, and she will have to answer fairly specific policy questions, and it doesn’t seem likely that she will do very well.  The first presidential debate will focus on foreign policy, which makes it likely that many questions at the VP debate will relate to the answers that the presidential candidates gave the week before, and that will put Palin on the spot.  When Biden isn’t running his mouth about whatever pops into his head, he can be an extremely effective critic and advocate, as his remarks on McCain and foreign policy today demonstrate. 

Update: McCain’s move to suspend his campaign and delay the first debate in response to the financial crisis may make Palin’s debate with Biden the first debate of the general election, or it may mean that Palin’s debate will be pushed back even closer to Election Day.

Arnold Kling is making sense:

How did we get into this mess in the first place? We got here because financial executives took on mortgage credit risk without understanding what they were doing. Some of them were new to the business, like the high-flying Wall Street firms who entered the industry during the boom. Some of them thought they were insulated from risk, because of new derivative hedging instruments. Some of the executives never belonged in the business in the first place, including Dick Syron at Freddie Mac, who in 2003 took over a firm where there was lots of knowledge of mortgage credit risk and proceeded to flout the warnings of experienced middle managers and the Chief Risk Officer about the firm’s plunge into subprime lending. Congressional and Administration meddling in support of “affordable housing” played a role, and those folks are still around working on the latest legislation. 

I am wearing two hats in opposition to the bailout idea. One hat is my libertarian hat, which does not like the power grab. The other hat is the applied financial economics hat, which was my career in the late 1980’s and early 1990’s. Speaking from the latter point of view, I have to warn that nobody involved in the bailout proposal has sufficient knowledge of mortgage credit risk. They are like Dick Syron–in over their heads without realizing it. The last thing we need in the mortgage market is another large, inexperienced player.

P.S.  Allan Meltzer’s comments from the News Hourare also worth considering, especially his closing remark:

No one, no one has said this will solve the problem. No one has said it will solve the major problem in housing and finance. 

To answer James’ question, I would have to say that the proposed bailout is probably just stupendously terrible, but it could be incomparably wretched.

Daniel Alpert has some observations on the problems with what Paulson and Bernanke told Congress and with the bailout plan.  This one seemed particularly important, since it seems pretty devastating to the claim that there is much potential for any upside once these securities have been purchased:

Chairman Bernanke is using the argument that there is a meaningful valuation differential between hold to maturity values and market values of troubled securities. When management of Fannie Mae and Freddie Mac tried to advance that very same logic to the government a few short weeks ago, the government said “no sale” and within days they were under conservatorship. There is no objective way to compute so-called “hold to maturity value” in an environment where ultimate cash flows from such securities are in serious doubt.

Alpert also raises a question similar to the one that occurred to me earlier today:

We are being told that the purpose of the $700 billion request is to recapitalize distressed institutions that so desperately need to sell us their sludge, in order that that the system may survive. But we are also told that those same institutions will back away from participating if we dare to ask for equity participation. We are essentially being asked to believe that if we throw a lifeline to a drowning man, he will refuse it because we want to be paid for the rescue (as the boards of AIG, FNM, FRE, and BSE proved, right? – um, not).

There is another basic reason why the taxpayers are probably never going to see this money again once it is used for the bailout:

On the other side of the looking glass is a world in which taxpayers recover their handout (or maybe even profit handsomely) after buying impaired securities at higher than the values they have been marked to by financial institutions to date (which, in some cases may not even be adequate markdowns, as the government found out when teams from the Fed and Treasury went into other institutions and ultimately recommended that the government take them over or shut them down). This scenario can only be based on the recovery of the assets underlying those securities – American homes – to levels approaching their bubble-era value.

In other words, purchasing the securities at a higher price in order to encourage participation by financial institutions essentially guarantees that the public never sees a dime of that money, because house prices are going to continue to decrease and make these securities worth less than whatever the government ends up paying for them.  I know this point has been made before, but it bears repeating.

Luigi Zingales of U of C’s Business School lays out the anti-bailout argument:

If banks and financial institutions find it difficult to recapitalise (i.e., issue new equity), it is because the private sector is uncertain about the value of the assets they have in their portfolio and does not want to overpay.

Would the government be better in valuing those assets?  No. In a negotiation between a government official and banker with a bonus at risk, who will have more clout in determining the price?

The Paulson RTC will buy toxic assets at inflated prices thereby creating a charitable institution that provides welfare to the rich – at the taxpayers’ expense. If this subsidy is large enough, it will succeed in stopping the crisis.

But, again, at what price?

The answer: billions of dollars in taxpayer money and, even worse, the violation of the fundamental capitalist principle that she who reaps the gains also bears the losses. Remember that in the Savings and Loan crisis, the government had to bail out those institutions because the deposits were federally insured. But in this case the government does not have do bail out the debtholders of Bear Sterns, AIG, or any of the other financial institutions that will benefit from the Paulson RTC.

Zingales then goes on to propose his restructuring alternative.  He then offers this conclusion, which gets to the heart of the matter:

Do we want to live in a system where profits are private, but losses are socialised? Where taxpayer money is used to prop up failed firms? Or do we want to live in a system where people are held responsible for their decisions, where imprudent behavior is penalised and prudent behavior rewarded? 

This lack of confidence trickles down. More than one person has asked me if they should pull all their cash out of their bank accounts in case the bank fails (these accounts all have less than the FDIC-insured $100,000 limit). That’s absurd; at this stage we’re not even approaching the possibility the government could not back the FDIC.  Heaven help us if it comes to that. However, that some entertain the possibility of uncontrollable bank runs shows just how deeply a lack of confidence has permeated. ~Free Exchange

Of course this fear is absurd, but a key reason why your ordinary depositor might begin to think this way is that all of the learned, serious experts are intoning gravely that we are on the eve of Armageddon.  I wonder why confidence might wane when all of the people who claim to know the most about what’s going on are declaring that the end is nigh.  Bailout supporters are doing their best to instill unreasoning fear in the minds of the public and their representatives to stampede them in the direction of taking action, but I would bet that this political panic is contributing directly to the general loss of confidence.  As the loss of confidence spreads because of alarmism, I can imagine that the political panic could lead to a worse financial panic than might otherwise be the case.

Update: Not surprisingly, alarmism and rumors are already creating undesirable results.  If depositors in Hong Kong are spooked by Lehman’s bankruptcy, despite the reality that it does not directly affect them, the loss of confidence has as much to do with what people perceive and mass psychology as it does with the soundness of their institutions and the availability of credit.