There is no way Congress is going to go home to the voters at the end of this month and be open to the charge that they did nothing about the financial meltdown in the credit markets.
So with uncharacteristic haste the lawmakers are proposing to authorize an outlay of up to $700 billion so that faltering lenders can unload their worst performing assets — mortgages, car loans, credit card debt — on the taxpayers. The idea is to bring liquidity and stability to the markets.
To paraphrase Treasury secretary Henry Paulson, whom the proposal would make a near-absolute monarch of the financial system, it is the least bad alternative. And there is a possibility that down the road, we might get our money back, perhaps with a modest profit.
Even as the lawmakers rush toward a self-imposed deadline of Friday, Senate Banking Committee Chairman Chris Dodd, D-Conn., was saying, "It’s important that we act quickly, but it’s more important that we act responsibly."
We hope Congress keeps that part about responsibility in mind as it goes about adding its own flourishes to the basic Bush administration package.
Some of the changes are simple mischief like a plan to limit executive compensation in companies that accept bailout money. True, executives of poorly performing companies have been rewarded with bonuses and severance packages that seem obscene to the rest of us but in the totality of the financial storm the amounts count for virtually nothing. As satisfying as taking a swipe at Wall Street pay might be, it puts the Treasury in the unwanted role of deciding exactly what is appropriate executive compensation.
Others set troubling and possibly far-reaching precedents. Proposed provisions would allow Treasury officials or bankruptcy judges to force lenders to rewrite the terms of existing loans and to forgive portions of the debt. This goes to the heart of the integrity of private, voluntarily agreed-upon contracts, and in a very real sense is unfair to borrowers who struggled successfully to fulfill the terms of their loans.
Yet another proposal would give the government an equity stake in the companies it is bailing out. Presumably the government could sell the stake at a profit when and if the company stabilizes. But almost by definition a company loaded with toxic assets is a bad investment, and it would put the government in the position of being both creditor and debtor in the same company. Which interest takes precedence?
It may be asking too much but we hope our lawmakers don’t fall into the trap of doing something simply so they can say they’ve done something.