With dire warnings about the fragility of the U.S. economy, President Bush Wednesday pushed Congress to act quickly to pass legislation to rescue the financial sector. More important, without acknowledging he had done so, the president acquiesced on two important points, allowing progress on deciding a bailout plan.
The Bush administration is pushing a $700 billion bailout plan that gives the secretary of the treasury wide latitude in using the money. Four days into discussion of the plan, the administration had yet to give lawmakers more than a three-page outline of the plan, which is one reason that legislators from both parties rightly resisted the rush to action.
The president had urged lawmakers not to tinker with the plan. They wisely disregarded that directive after hearing from thousands of constituents angry about what many perceive as a bailout of irresponsible, but rich, firms and people while working-class Americans are struggling to pay their mortgages and rising fuel bills.
During Wednesday’s televised address to the nation, his first since the financial crisis began, the president blinked. He agreed that the plan should include limits on CEO salaries at failed institutions and that taxpayers should be protected (he didn’t say how). Both were central to Democratic opposition to his plan.
President Bush also addressed concerns from conservative Republicans who object to the government takeover of private corporations. “I’m a strong believer in free enterprise, so my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business,” he said. “Under normal circumstances, I would have followed that course. But these are not normal circumstance.”
He then laid out a frightful scenario — local bank failures, retirement account losses, difficulty getting loans for cars and college, business closures and job losses — meant to scare the public and lawmakers into backing a quick bailout plan.
During a long, but dispassionate, lesson on how the financial system became so unstable, the first president with an MBA degree was careful not to blame anyone, especially his administration. He talked of “faulty assumptions” and companies that “found themselves” in dire straits, but never blamed weak regulations or poor oversight.
The fundamental problem is that banks and financial institutions are reluctant to make new loans. Without money in the system, financial systems don’t function properly. The government plans to inject a lot of new money into the system by buying assets, such as mortgage-backed securities. Those assets would be sold, with the proceeds returned to the Treasury Department, when the markets are stabilized.
A plan to dole out that money, starting with $150 billion, coupled with an assessment, overseen by Congress, of how that cash infusion worked makes a lot of sense. It could be that less than the $700 billion is needed to restore confidence and liquidity. Or, lawmakers could find that additional cash infusions should come with tighter restrictions.
Votes on a revised package are expected this weekend. A phased bailout, with required reporting and oversight, is worthy of support.