There is growing worry about what will happen if Congress can’t come up with a compromise on the bailout (or “rescue” as McCain has renamed it.)  Many economists argue that not passing some type of bailout plan could cause devastating effects to the economy at large.  If businesses don’t have access to short-term credit, they may fail. Small businesses need loans to grow and pay their employees. Retail stores use these loans to stock their shelves with holiday merchandise.

Lack of credit hurts individuals too.  In addition to potentially losing their job, people may have fewer loan options for cars, college, and more. Just this morning CNBC reported that only 60% of people with GOOD credit are getting car loans — down from 90%.

If these economists are correct, lower and middle income Americans — who are already suffering — will feel the brunt of Congress’ failure to act.

What led to yesterday’s failure then?  In part, the plan tanked because of a void of leadership and effective communication.  Congressional leaders sat locked behind closed doors discussing details of the plan leaving no one to speak candidly to the American people.  Meanwhile, the remaining congressional members were in their offices where the phones were ringing off the hook with calls from constituents expressing their dissatisfaction and disgust about the proposal.

Voters overwhelmingly hated this plan not because it was a bad idea, but because it was never effectively communicated.  No Washington official has fully explained how we got into this situation, why a bailout is important, how the business of Wall Street affects Main Street, and what steps we will take to make sure we never find ourselves in this situation again. So instead, Americans heard that $700 billion of their money was going to bailout Wall Street fat cats who made stupid decisions.  Clearly this doesn’t sit well with the growing number of families that struggle to pay for gas to get to a job that they don’t know will be there next month.

Instead of providing real leadership, some Congressional leaders capitulated to these calls because they were scared of losing votes in next month’s election.  We will see what happens over the next few days, but it seems that House members were more concerned about their short term political future then the long term economic impact of inaction.

As, DLC chairman Harold Ford Jr. said last night on MSNBC:

What happened today was an embarrassment for the country. And I just hope that my friends, my old colleagues and my dear, dear friends in the Congress can come back together very, very soon, shortly after this holiday…and do something on behalf not only of, as they say, Wall Street, this has very little to do with Wall Street. This is about Main Street. And before we begin to hear the cries and the screams and the howls, they should act.

Update: It looks like Barack Obama just filled the leadership and communications void.

The House voted against the economic bailout with 226 members voting against and 207 for it, causing the Dow to drop as much as 700 points.  No one knows exactly how the next few days will play out, but we will see one of three things: Congress will renew negotiations and pass a slightly altered version, they will go back to the drawing board and pass a completely different version, or they will do nothing.

What does this mean for low-income Americans?  If Congress somehow passes a new package, we know one thing for certain: money will be tight at the federal, state, local and individual level and we can’t count on a big boost in spending for anti-poverty programs. That means that over the next few years poverty advocates are going to have to be opportunistic and creative in identifying strategies to assist low-income workers in the context of other policy areas.

For example, we know that the next president and Congress will have a significant debate next year over taxes.  While tax policy isn’t always at the top of our minds when looking to reduce poverty, this is the perfect time to insist that any tax cut not only help those in the middle class but increase the size of the middle class by expanding the Earned Income Tax Credit.

In addition, while we also saw crude oil drop below $100 per barrel today due to economic anxiety, both presidential candidates have made energy independence a key priority. Creating a new energy economy will have a significant impact on the lives of low-income Americans.  While there may not be as much money for subsidies and tax credits when Congress finally takes up this issue, the government must play a key role in facilitating the expansion of alternative energies.  As they expand, so will the green collar job opportunities - such as retrofitting buildings - that will benefit many individuals who are struggling to find a high-wage job.  These are just two examples. There will be more, but we will have to be very creative in what are likely to be some very lean years.

We need to hear about the economy. Yes, the debate topic is national security and foreign policy. But at this unique moment in American history now is the time to bend the debate rules. We need a clear explanation of the candidates’ economic plans. We need to know what they really think about the bailout, how they will bring greater accountability to Washington and Wall Street, and how they plan to assist the struggling taxpayers who will carry the economic burden on their shoulders.  Thankfully, Jim Lehrer is planning to do that according to blogger, Marc Ambinder.

However, the first step is to get both candidates in Oxford, Mississippi.

For too long there has been an unnecessary debate over the causes of and solutions for the poverty that affects our inner cities.  Conservatives focus primarily on the role of families while liberals focus on the role of government. The truth is that both play an important role.  We only need to look at the mess we are dealing with on Wall Street to realize that government can and should play an important role in ensuring our economy works well for everyone and not just a few.

But the family structure is a vital societal institution that no government support can ever replace. That’s why I was excited to read Adam Serwer’s article this week in the American Prospect - a publication that falls on the left in the progressive media spectrum - about the importance of fatherhood initiatives especially in low-income African American communities. Sewer highlights Barack Obama’s Father’s Day speech as an example of a new Democratic interest in family structure. He correctly writes:

For years, conservatives have shrugged off public-policy solutions to black poverty, arguing that cultural problems with marriage and fatherhood are primarily to blame. Liberals, hobbled by a desire to avoid alienating black voters, failed to acknowledge their own public-policy failures and ensuing cultural problems as contributors to black poverty. In short, conservatives blame the breakdown of the black family, and liberals blame the breakdown of the system.

Neither explanation adequately explains the dilemma or provides for a solution, but together they effected a stalemate on an issue that remains a low priority in the minds of most lawmakers. John McWhorter, a self-identified centrist and fellow at the Manhattan Institute who sees fatherlessness as one of the causes of lingering poverty in the black community, was glad Obama gave the speech. “The sad fact is that fatherlessness does not stand out in the popular imagination as an emergency in the way that, say, poverty or Jim Crow did in the ’60s,” McWhorter says. No matter what the reaction, Obama’s speech brought fatherlessness to the forefront of public debate.

If elected, Barack Obama can play a unique role in ushering in a new generation of responsible fathers. Given his previous work on the issue, including his work with Sen. Evan Bayh on the Responsible Fatherhood and Healthy Family Act, we have every reason to believe he will tackle this issue head on and move the debate beyond the traditional family or government argument.  An Obama administration would provide men with the government support they need but also demand from them that they take responsibility for themselves and their families.

Yesterday, PPI president Will Marshall penned an op/ed for the New York Daily News telling lawmakers to slow down and not rush to pass a faulty bailout package. Marshall writes:

The Bush administration is urging Congress to act swiftly on Treasury Secretary Hank Paulson’s $700 billion bailout plan for bankrupt financial firms. When a Wall Street titan like Paulson says it’s the only way to stave off Armageddon in global financial markets, lawmakers are bound to listen.

But they shouldn’t panic or be strongarmed into accepting the administration’s reform package. Few doubt that the U.S. government is going to have to pony up hundreds of billions of dollars to stabilize the financial markets. There are serious disagreements, however, about how much economic risk to load on U.S. taxpayers. While Congress obviously can’t afford to dawdle, it must take the time to get this one right.

Marshall is right in saying, “[t]he main point here is not that those critics are right and Paulson is wrong. It is simply that there are far too many gaping holes in his plan.”  Paulson has outlined a plan that would effectively put him in charge of $700 billion worth of government investments. Taxpayers, many of whom are struggling themselves, ought to know more. They deserve to get something in return for their billions and they need the reassurance that there will be accountability and oversight in this process.

This New York Times analysis by Peter S. Goodman hits the nail on the head:

But an underlying source of doubt about the bailout stems from who is asking for it. The rescue is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress.

We can’t forget that the last time this Administration asked the American people and Congress to act on faith we were led to believe our country faced a dire threat of Iraq’s weapons of mass destruction.

Yesterday, the Wall Street Journal ran an article listing the federal policies they believe led to the economic crisis. They wrongly cite the Community Reinvestment Act (CRA) in this list:

Robert Litan, an economist at the Brookings Institution, told the Washington Post this year that banks “had to show they were making a conscious effort to make loans to subprime borrowers.” The much-maligned Phil Gramm fought to limit these CRA requirements in the 1990s, albeit to little effect and much political jeering.

It is irresponsible and frankly, just factually wrong, for the Journal and others to cite the CRA as a cause of the current financial mess. In April, Robert Gordon wrote a piece for the American Prospect in defense of the CRA that is worth revisiting. Gordon notes:

First, consider timing. CRA was enacted in 1977. The sub-prime lending at the heart of the current crisis exploded a full quarter century later. In the mid-1990s, new CRA regulations and a wave of mergers led to a flurry of CRA activity, but, as noted by the New America Foundation’s Ellen Seidman (and by Harvard’s Joint Center), that activity “largely came to an end by 2001.” In late 2004, the Bush administration announced plans to sharply weaken CRA regulations, pulling small and mid-sized banks out from under the law’s toughest standards. Yet sub-prime lending continued, and even intensified — at the very time when activity under CRA had slowed and the law had weakened.

Second, it is hard to blame CRA for the mortgage meltdown when CRA doesn’t even apply to most of the loans that are behind it. As the University of Michigan’s Michael Barr points out, half of sub-prime loans came from those mortgage companies beyond the reach of CRA. A further 25 to 30 percent came from bank subsidiaries and affiliates, which come under CRA to varying degrees but not as fully as banks themselves. (With affiliates, banks can choose whether to count the loans.) Perhaps one in four sub-prime loans were made by the institutions fully governed by CRA.

Progressives cannot allow anyone to blame Wall Street’s recklessness on a successful policy that brings mainstream banking options to underserved people. If anything, now is the time to revisit the CRA and see how we can modernize it so that it includes more financial services and better serves low-income communities.

The Washington Post published an article today by Joel Achenbach about taxpayers’ anxieties due to the proposed Wall Street bailout:

This may be a Main Street bailout backlash in the making. The details of the financial crisis are still hard for most people to follow — what with talk of exotic “derivatives” known as “credit-default swaps” and so on — but the central fact of the matter hasn’t been lost on anyone in this Northern Virginia community: The taxpayers are on the hook for the bad judgment of others.

And they say they don’t like it. They didn’t break it, but now they’ve bought it.

While the bailout may be the only way to save the economy from long-term ruin, Achenbach writes:

The wisdom of the government’s massive financial intervention hasn’t been marketed to the masses. The nation’s financial and political leaders are working round the clock to repair the shattered markets, and no one, from the White House on down, has spent more than a few minutes explaining to the American people why they’re being asked to assume hundreds of billions of dollars of liabilities.

Taxpayers deserve an honest and clear explanation from federal leaders, since it is their money the government is throwing at Wall Street. The $700 billion bailout is approximately twice the cost of the Iraq War and more than $2,000 per American.  And given the record deficits that we already face, this bailout could result in more than $7 trillion in accumulated deficits over the next 10 years.

Yet, it doesn’t seem that we will get a straightforward response from the two presidential candidates. Both McCain and Obama have vowed that the $700 billion bailout won’t change their proposed tax cuts or spending plans, which is either political pandering or a scary realization that we have learned nothing from Bush’s failed economic policies.

If there is a shining light in all of this, it’s coming from the Democrats in Congress who are pressing for a bailout that includes foreclosure assistance for struggling homeowners and limits on CEO pay. Any plan to help Wall Street, should also include measures to help Americans keep their footing in this shaky economy. In the end, this bailout may be necessary to ensure that we do not enter a prolonged recession or depression, which would have profound effects on the already struggling lower and middle class.  But if the taxpayers are going to come to the aid of Wall Street, the government cannot ignore Main Street.

Today, PPI released the first of a multi-part series of Memos to the Next President. These memos will cover a broad spectrum of the most important issues that the next president should make a top priority. The first memo by Doug Ross, superintendent of the University Preparatory Academy in Detroit, addresses the importance of charter schools in reducing the graduation gap.

There has been very little discussion of education during the presidential election. However, on the rare occasion that education is mentioned, it is usually in the context of making American students more competitive with their international peers. Ross notes that on international academic tests, the top-two thirds of American students easily compete with kids from other countries. However, the bottom third lags way behind:

That this bottom-achieving third consists largely of urban, low-income African- American and Latino kids raises this challenge beyond the economic. While we may not like to admit it, a mother’s race and income remain powerful predictors of a child’s academic performance. To put it simply, educating poor kids is the civil-rights issue of our time. (Emphasis mine)

Ross argues that while the results in many urban schools have been abysmal, there has been a significant amount of good news from a growing number of public charter schools. He cites four successful characteristics of these schools with greater autonomy.

1. These schools refuse to make excuses for poor performance. They take full responsibility for their students’ success despite their economic status, family background or poor preparation.
2. These schools believe that creating a culture of success “trumps everything.” They foster an environment where success is the norm.
3. Faculty members keep a close tab on the students and “know how each student is doing academically and socially at all times.”
4. The school is ready to do whatever is necessary to make sure every student succeeds.

Ross lends a credible voice to this discussion. University Prep, the public charter school he helped establish in Detroit has been in operation for the past eight years and has had incredible success rates. Though the student body is 100 percent minority and overwhelmingly poor, 93 percent of students graduated last year and 91 percent of those graduating seniors enrolled in college or technical school.

As the parties try to define their economic agendas for the American voter, a major opportunity presents itself for the Democrats.

As I argue in a new op-ed that has just gone up at U.S. News & World Report, the party of Andrew Jackson and FDR has a chance to once again redefine itself as the party most attuned to the realities of economic change.

The key?  Recognize that the 21^st century economy is based on entrepreneurialism, and create economic policies that give a broader range of Americans the resources they need to thrive in that economy.

If crafted properly, such an economic program could serve as a powerful lever to move more Americans out of poverty-and protect workers from the worst effects of economic downturns, factory closings, and other financial forces that are outside their control.

By empowering more Americans to establish and sustain their own businesses-including home-based enterprises-we could generate all kinds of gains, from allowing parents to spend more time with children to reducing commuter congestion on the highways.

That doesn’t even include the most fundamental benefit-giving workers the means of keeping sustainable work that is more insulated from the turbulence of the traditional large-employer job market.

Excerpt:

At a time when almost no one expects to spend an entire career with a single employer, the surest definition of economic security for an individual American is access to educational and entrepreneurial opportunities that provide the broadest possible range of economic options, regardless of whether the local plants happen to be hiring.

So far, neither major party has firmly established itself as the champion of the new entrepreneur-the self-employed, often home-based businessperson who harnesses the rapid advances in communications technology to create ventures of unprecedented variety and flexibility.

… Such a life is not for everyone, but it is an option that many people would find attractive. By making it more accessible, Democrats could emerge as the new party for an increasingly entrepreneurial age.

News of the Wall Street crisis continues to leave analysts mixed about how deeply it will affect Main Street. But it looks like those on the bottom rungs of the economic ladder will have a tougher climb as the economy could take another turn for the worse.

On the heels of this market meltdown, the findings from a recent Rockefeller Institute of government report are particularly troubling:

In 2006, for the first time since 1983, social welfare spending by state and local governments dropped after adjusting for inflation and the number of people living in poverty-a rough estimate of the real value of such programs for their target populations.

Like I have mentioned before, many states have taken a renewed interest in helping their poorest citizens. Yet, with budget shortfalls at the state and federal level, coupled with a worsening economy, it’s likely that states will have to cut funding even more.