The nation’s editorial pages today are filled with commentary on the financial bailout proposed by Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, who are urging Congress to approve the bailout promptly:
WASHINGTON – Federal Reserve Chairman Ben Bernanke and Treasury Secretary Henry Paulson urged Congress on Tuesday to quickly pass a $700 billion financial bailout, warning that letting problems persist would have dire consequences for the national economy.
The nation’s top two economic leaders made the assertions in prepared remarks to be given later Tuesday to the Senate Banking Committee. Their latest take on the financial crisis came as the Bush administration and lawmakers scramble to forge an agreement on a plan that could be the biggest such bailout in U.S. history.
“If financial conditions fail to improve for a protracted period, the implications for the broader economy could be quite adverse,” Bernanke said in his prepared for the panel.
Paulson’s written testimony struck a similarly grave note.
“We must do so in order to avoid a continuing series of financial institution failures and frozen credit markets that threaten the well-being of American families’ financial well-being, the viability of businesses both small and large and the very health of our economy,” Paulson said.
The New York Times, wary of the Bush Administration, leans towards the Democrats’ alternative planning of trading bank debt for equity, and urges increased oversight, regulation, and a more leisurely debate:
A counterproposal now being developed by the Democrats would require firms that sell their troubled assets to the Treasury to give the government stock — an idea that has populist appeal but also needs to be vetted carefully. It also would try to help homeowners, who are left out of the administration’s plan entirely, allowing them to have their mortgages modified under bankruptcy court protection. That step that should have been taken long ago to avert the foreclosures and house price declines that are at the root of the crisis.
Senator Christopher Dodd, chairman of the Senate Banking Committee, is also calling for an oversight board of federal officials and other experts. We believe that is still not enough. But all of the competing proposals provide interesting starts for a serious debate.
There is time to have it.
The Washington Post notes the potential hazard of either borrowers or lenders taking the opportunity to fleece taxpayers but urges Congress to keep its eyes on the prize:
A little delay was both inevitable and desirable. Congress cannot write a $700 billion check with no questions asked. But speed and focus are still of the essence, and leaders in both parties must not use this crisis as an opportunity to refight all the political battles of the past year. They should treat it as what it is: a chance, possibly the last chance, to keep the U.S. financial system from collapsing.
The Los Angeles Times calls for Congress to emend the proposal with increased oversight, require banks to compete for aid, make it “easier for lenders to help borrowers who can afford to stay in their homes until the housing market rebounds”, extend unemployment benefits to stimulate the economy, and take steps to prevent a recurrence of the conditions that lead to the crisis.
The Chicago Tribune cautions Congress not to allow itself to overreach:
A crisis can produce all sorts of reactions, some healthy and some not. Last week’s Wall Street meltdown spurred a response from the Treasury Department and the Federal Reserve targeted to the real threat, which was an accelerating financial panic that would derail the U.S. economy. But now Congress gets its say, and the impulse there is quite different: using the opportunity to demand all sorts of things that were out of reach before.
[…]
In the end, though, Congress ought to concentrate on letting the Fed and Treasury get on with a job that they have handled well so far. Despite charges that the deal favors Wall Street over Main Street, it’s ordinary people who stand to lose the most from recent upheavals in the financial sector. Paulson and Bernanke were justifiably fearful of a collapse that would have spread throughout the broader economy, bankrupting Main Street companies and throwing their employees out of work.
The danger that loomed so large last week has subsided, but it has not disappeared. That’s a good reason for Congress to ignore election-year temptations and keep its eyes on the prize.
In the blogosphere Megan McArdle charts out how close we came to actual meltdown:
If the FDIC hadn’t stepped in to backstop the runs on the money market funds, it’s not crazy to think that we might have seen a massive liquidation of huge portions of the banking system at fire sale prices. That magnitude–one person I talked to before the bailout gave a wild-sounding estimate of $1 trillion worth of money market fund redemptions in the immediate offing. With the money market essentially destroyed, the resulting bank liquidations would have been even worse, beyond even the ability of the US Government’s borrowing power to pull back. That would have touched the bank accounts, the investments, and the firms of even the hawkiest of credit hawks–unless you’ve actually got it buried in your back yard in tin cans, you’d lose something, and even then, who would buy whatever it is you sell to make a living?
Consider that the Great Depression came upon a society much less dependent on unsecured credit than we are. Then count your lucky stars that our financial officials are moderately competent.
How likely was this doomsday scenario? No way to know. But it was possible. That’s quite scary enough.
Anarcho-capitalists in the blogosphere, numerous, seem to think that letting the worst-case scenarios play out is well worth the pain if only they can use it as a club to blame the government, any government, with.
Democratic partisans seem quite satisfied to delay, in some cases as I’ve noted before until after the next administration takes over, as long as it can be turned to political advantage.
I don’t have any objections to increased oversight or increased regulation so long as both the oversight and regulation are directed at problems we actually have rather than for their own sake. I have yet to hear the proponents of greater oversight and regulation propose specifics and connect the dots between the regimes they prefer and the excesses that got us where we are right now.
However, later is not as good as sooner, as the experience in the markets in the last few days demonstrates rather clearly. Failure to act quickly will have roughly the same consequences as failing to act at all and the Democratic Congressional leadership will have taken ownership of whatever problems arise. In that case they’d better hope that the advocates for the unfettered market are right.
