The news of the moment is Congress's effort, with some showing off by President Bush, to cobble together some legislation that will be nothing more than a band-aid, and a pretty skimpy one at that, to hold the economy together until it can be foisted off on to the next administration and the 111th Congress who will then be confronted with really getting serious about how we've ended up in the current economic mess. Since, despite its skimpiness, the band-aid is going to cost all of us taxpayers a lot of money, it deserves some attention, but even an expensive skimpy band-aid is just a skimpy band-aid. Could it have been a better band-aid, and maybe even less expensive for rank and file voters? Maybe. To begin thinking about this, follow these three easy steps.
1. First read this, an opinion piece by Senator Hillary Rodham Clinton and published this morning in The Wall Street Journal.
There is a broad consensus that Congress must act to stave off deeper turmoil on Wall Street. Irrespective of the final agreement yet to be reached, there are several principles that must be part of a broader reform effort that begins this week and continues in the coming months.
This is not just a financial crisis; it's an economic crisis. Therefore, the solutions we pursue cannot simply stabilize the markets. We must also deal with the interconnected economic challenges that set the stage for this crisis -- and reverse the failed policies that allowed a potential crisis to become a real one.
First, we must address the skyrocketing rates of mortgage defaults and foreclosures that have buffeted the economy and ignited the credit crisis. Two million homeowners carry mortgages worth more than their homes. They hold $3 trillion in mortgage debt. Nearly three million adjustable-rate mortgages are scheduled for a rate increase in the next two years. Another wave of foreclosures looms.
I've proposed a new Home Owners' Loan Corporation (HOLC), to launch a national effort to help homeowners refinance their mortgages. The original HOLC, launched in 1933, bought mortgages from failed banks and modified the terms so families could make affordable payments while keeping their homes. The original HOLC returned a profit to the Treasury and saved one million homes. We can save roughly three times that many today. We should also put in place a temporary moratorium on foreclosures and freeze rate hikes in adjustable-rate mortgages. We've got to stem the tide of failing mortgages and give the markets time to recover.
The time for ideological, partisan arguments against these actions is over. For years, the calls to provide borrowers an affordable opportunity to avoid foreclosure as a means of preventing wider turmoil were dismissed as government intrusion into the private marketplace. My proposals over the past two years were derided as too much, too soon. Now we are forced to reckon with too little, too late.
As a result, the home-mortgage crisis slowly eroded the value of debt instruments upon which Wall Street firms were depending. That is how this house of borrowed cards began to fall. If we do not take action to address the crisis facing borrowers, we'll never solve the crisis facing lenders. These problems go hand in hand. And if we are going to take on the mortgage debt of storied Wall Street giants, we ought to extend the same help to struggling, middle-class families.
Second, American taxpayers should have a voice and a stake in the resolution of this market crisis. If the Treasury proposal is enacted in its current form, the American government would assume enough financial risk to become the majority shareholder in the companies rescued by taxpayer dollars.
The American people are bearing the risk and therefore deserve to reap the rewards of a shared equity model. And mortgage securities bought by taxpayers must be valued accurately at prices disclosed in real time, with checks and reporting requirements to prevent abuse.
Third, taxpayers are being asked to bear an unparalleled degree of financial risk. We cannot allow taxpayers to take on this burden so that Wall Street and the Bush administration can hit the "reset button." This historic intervention demands a historic shift in priorities: an end to the broken culture on Wall Street, and the broken economic policies in Washington.
Corporations that will benefit must be held accountable, not only to large shareholders but also to the American people, who are rightly tired of business as usual: short-term profit at the expense of long-term viability; lax oversight and regulation; obscene bonuses and golden parachutes regardless of performance; reckless risk-taking that has placed the markets in jeopardy; rewards for foreclosing on middle-class families and selling mortgages designed to fail; and outsourcing good jobs to serve short-term stock prices instead of America's long-term economic health.
This is a sink-or-swim moment for America. We cannot simply catch our breath. We've got to swim for the shores. We must address the conditions that set the stage for the turmoil unfolding on Wall Street, or we will find ourselves lurching from crisis to crisis. Just as Wall Street must once again look further than the quarterly report, our nation must as well.
Mrs. Clinton, a Democrat, is a senator from New York.
2. Next, read this, from the AP late this afternoon.
WASHINGTON (AP) — President Bush and the two men fighting to succeed him joined forces at a historic White House meeting Thursday, trying to sell resistant lawmakers on a multibillion-dollar bailout plan for Wall Street aimed at staving off what the president called "a serious economic crisis." Key members of Congress struck a deal earlier in the day but others were unwilling.
The tentative accord would give the Bush administration just a fraction of the $700 billion it had requested up front, with half the money subject to a congressional veto, Capitol Hill aides said. Even that was hardly final. Sen. Richard Shelby, top Republican on the Banking Committee, emerged from the White House meeting and said, "I don't believe we have an agreement."
Democrat Barack Obama and Republican John McCain, who have both sought to distance themselves from the unpopular Bush, sat down with the president at the White House for an hourlong afternoon session that was striking in this brutally partisan season and apparently without precedent. By also including Congress' Democratic and Republican leaders, the meeting gathered nearly all Washington's political power structure at one long table in a small West Wing room.
"All of us around the table ... know we've got to get something done as quickly as possible," Bush told reporters, brought in for only the start of the meeting. Obama and McCain were at distant ends of the oval table, not even in each other's sight lines. Bush, playing host in the middle, was flanked by Congress' two Democratic leaders, House Speaker Nancy Pelosi and Senate Majority Leader Harry Reid.
No one else spoke before the cameras left.
Hours earlier, private talks on Capitol Hill ended with the announcement that an agreement in principle had been reached on a financial rescue package — though changed somewhat from the one the Bush administration proposed last weekend.
Under the plan agreed to by key lawmakers at the Capitol, the Treasury secretary would get $250 billion immediately and could have an additional $100 billion if he certified it was needed, congressional aides said. The last $350 billion could be blocked by a vote of Congress under the arrangement, designed to give lawmakers a stronger hand in controlling the unprecedented rescue.
There were signs that the conservative-leaning House Republican Caucus was not on board. Both of Congress' Republican leaders, Rep. John Boehner and Sen. Mitch McConnell, issued statements saying there was not yet an agreement.
But Banking Chairman Chris Dodd, D-Conn., and Republican Sen. Bob Bennett, among others, said negotiators from Congress and the administration had arrived at a deal that could win approval. Other key lawmakers said that after days of bare-knuckles negotiations there was little of note left to resolve.
Wall Street showed its pleasure cautiously. The Dow Jones industrials closed some 196 points higher, though that was down from larger gains earlier in the day.
The plan's centerpiece is for the government to buy the toxic, mortgage-based assets of shaky financial institutions in a bid to keep them from going under and setting off a cascade of ruinous events, including wiped-out retirement savings, rising home foreclosures, closed businesses, and lost jobs.
The Bush administration has made concessions almost daily to demands from the right and the left from its original three-page proposal, including agreeing to limit pay for executives of bailed-out financial institutions and give taxpayers an equity stake in rescued companies.
The White House timed the extraordinary meeting to fit the candidates' schedules — and to convene after the close of stock markets.
It was somewhat upstaged nearly three hours before various motorcades deposited the meeting participants and their entourages, when Capitol Hill leaders reported their deal. Despite the national prominence of Bush, McCain and Obama, none has been deeply involved in this week's scramble to hammer out a package.
The developments on the Hill lent fresh and urgent purpose to the session: providing encouragement — and political cover — for lawmakers of both parties to accept a plan. It is expected to come up for votes in the House and Senate quickly, perhaps within days, so that lawmakers can adjourn to campaign for their own re-elections.
But any pitch by Bush, Obama and McCain would be no easy sell.
All lawmakers are returning to home districts packed with constituents angry that they are being asked to foot the bill to bail out Wall Street's rich guys when they and their neighbors are suffering the effects of ballooning mortgages and tightening credit. This means Obama and even the increasingly marginalized Bush could have sway with their joint resolve.
McCain, in particular, was being leaned on by Democrats and fellow Republicans alike to deliver GOP votes, as some conservatives are in open revolt over the astonishing price tag of the proposal and the heavy hand of government that it would place on private markets. Placating them enough to bring them in line could be a tall order for the Republican presidential nominee who has a checkered relationship with the right wing of his party.
A group of GOP lawmakers circulated a less government-focused alternative. Their proposal would have the government provide insurance to companies that agree to hold frozen assets, rather than have the government purchase the assets. Rep Eric Cantor, R-Va., said the idea would be to remove the burden of the bailout from taxpayers and place it, over time, on Wall Street instead.
Layered over the White House meeting was a complicated web of potential political benefits and consequences for both Obama and McCain.
McCain hoped voters would believe that he rose above politics to wade into successful, nitty-gritty dealmaking at a time of urgent crisis, but he risked being seen instead as either overly impulsive or politically craven, or both. Obama saw a chance to appear presidential and fit for duty, but was also caught off guard strategically by McCain's surprising gamble in saying he was suspending his campaigning and asking to delay Friday night's debate to focus on the crisis.
3. Now, think about this.
How different would the emerging bailout package look if Senator Clinton had been seated at the Bush roundtable today? Not necessarily as Presidential candidate, although what a missed opportunity that was. Maybe as Senate Majority Leader instead of Harry Reid? Perhaps simply as the person who received more primary votes than President Bush, Senator Obama, or Senator McCain.
