Op-Ed

Focus on Financial industry woes

Bailout essential, but devil in the details

Many people on both the right and the left are outraged at the idea of using taxpayer money to bail out America's financial system. They're right to be outraged, but doing nothing isn't a serious option. Right now, players throughout the system are refusing to lend — and this collapse of credit reminds many economists of the run on the banks that brought on the Great Depression.

So the grown-up thing is to do something to rescue the financial system. The big question is, are there any grown-ups around — and will they be able to take charge? Henry Paulson, the Treasury secretary, tried to convince Congress that he was the grown-up in the room, come to protect us from danger. And he demanded total authority over the rescue: $700 billion to be used at his discretion, with immunity for future review.

Congress balked. No government official should be entrusted with that kind of monarchical privilege, least of all an official belonging to the administration that misled America into war. Furthermore, Paulson's track record is anything but reassuring: he was way behind the curve in appreciating the depth of the nation's financial woes, and it's partly his fault that we've reached the current moment of meltdown.

Besides, Paulson never offered a convincing explanation of how his plan was supposed to work — and the judgment of many economists was, in fact, that it wouldn't work unless it amounted to a huge welfare program for the financial industry. The congressional plan looks a lot better — a lot more adult — than the Paulson plan. That said, it's very short on detail, and the details are crucial. What prices will taxpayers pay? How much equity will they get in return? Those numbers will make all the difference.

Tell public hard truths

The Bush administration tries to suggest that this is not as bad a deal as it seems for taxpayers. We may even make money on the deal eventually. But the truth is, nobody seems to know what these securities are worth, and nobody can say that this $700 billion bailout will set the credit markets aright. Plus, for the past year this same group of people has been telling us the mortgage crisis had been "contained." What the public really wants to hear right now is the truth.

Like the costs of a prolonged war, this bailout means money will be shaved from already underfunded programs like early-childhood education, which arguably is among the best investments for the future the government could make. How many fewer small business loans will the government be able to make? What about infrastructure needs like roads and bridges and research in technology? Most people know you do not get out of holes like the one the U.S. has been digging for itself without buckling down. We deserve a hard talking to, an honest accounting and a call to sacrifice. I just hope we have a leader with the courage to do it.

Goodbye to campaign vows

The financial meltdown will change many things in America, and we can start with campaign promises. You can say goodbye to universal health care, a cornerstone of Barack Obama's campaign strategy. Massive medical benefits are now impossible because the bailout will take all the money. Also, it's sayonara to John McCain's across-the-board tax cuts. The Democrats will likely control Congress again and, in the face of a $750-billion expenditure, there is little chance taxes will decline in any significant way.

So, both candidates find themselves losing a major core issue because of the greedy, stupid mortgage scandal. Just two weeks ago, the Palin bounce had John McCain leading Barack Obama in just about every national poll. Now McCain has fallen behind Sen. Obama, and it's directly because of the economic madness.

Fat cats will get ahead

Now the same Republicans who sat back cashing campaign checks from Wall Street fat cats for seven plus years and busily deregulated everything in sight, including those who'd watched over everything from baby milk powder to brightly colored lead-painted toys to pet food, want to use our money to rescue the robber barons.

If you needed any further evidence that there's something rotten at the heart of this deal, just look at the Wall Street lobbyists circling around the rescue bill like so many ravenous wolves. We, the people, are going to have to pay some of them to maintain that property, auction off that property and hold the money earned from the auctions. The wolves smell blood and they smell money, and we the people are supposed to rescue them and make them whole and forgive them and, oh yes, let them make more money in the process.

Democrats caused crisis

At the root of this mess is not the failure of capitalism but political interference in the market. It was Democrats who pushed for and passed the Community Reinvestment Act of 1977 that forced banks to serve their "whole communities" and required them to offer loans to people who were not credit worthy. In 1995, the Clinton administration's Department of Housing and Urban Development, headed by Andrew Cuomo, implemented new regulations requiring banks to meet numerical quotas in lending and demonstrate the diversity of their borrowers. While housing prices were rising, the bad loans were hidden. But as soon as prices began to fall and adjustable ARMs kicked in, the defaults began. It was Democrats who closed ranks to insulate their pet projects -- Fannie Mae and Freddie Mac -- from proper oversight and regulation.

  Comments