Next move

In the wake of today's events let's be clear about four facts. One, neither the Democrats nor the Republicans were happy with the plan that went before the House today. Two, the plan under discussion was the best hope for finding a bipartisan compromise -- any move toward the right will lose Democratic votes, any move to the left will lose Republican votes. Three, Republicans dislike the compromise plan but would almost universally support a plan with absolutely no chance of working. Four, Democrats dislike the compromise plan but would almost universally support a plan with a better chance of working.

It's time for the Democrats to finally and at last admit that the House Republicans must be shut out of all policy discussions. The question is no longer "How do we get crazy people to cast a sane vote?" but is rather, "What is the best approach?"

The verdict of professional economists is clear. Significant institutions of the financial sector must be temporarily nationalized in order to accomplish recapitalization and allow the spiral to unwind with minimal disruption of economic activity. The House Democrats can and should pass such a plan. Then we can have a real negotiation between the Senate, the House Democrats, and the Department of the Treasury.

Krugman, who is very smart, said that he supported the Paulson Plan despite its flaws because it's politically impossible for Democrats to pass an economic recovery plan without Republican cover. But if we know anything, we know that so-called Republican cover is a mirage. The GOP wasn't ever going to do anything except blame Democrats for cleaning up the mess. So let's clean it up the right way, and then have an argument on the merits.

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