Government should get bailout right

Central Penn Business Journal, Sep 26, 2008

There's no more denying the Wall Street crisis is the worst to hit the financial markets since the Great Depression: Bear Stearns Cos. bought. Fannie Mae and Freddie Mac taken over by the government. Lehman Bros. bankrupt. AIG bailed out.

It's still not clear how much the string of bankfailures and government actions will affect the nation's economy or businesses in Central Pennsylvania. What is clear is that the people steering the nation's economic ship need to be as calm and rational as possible as they try to enact an appropriate federal response.

So far, we're not impressed. In fact, the flurry of aerivity this week leaves us with more questions than swers.

Why did U.S. Treasury Henry Paulson wait until now to come up with a plan? Foreclosures spiked and the housing bubble popped in 2007. Bear Stearns collapsed in March. The alarm bells should have started going off a long time ago that something extraordinary was happening with the subprime-mortgage market.

Why $700 billion? So far, there's been no clear explanation of howtheTreasury arrived at that figure. Other experts have put what will actually be needed at closer to $1 trillion, or even higher. Taxpayers - that's us - deserve a clear accounting for an expenditure of this size, one that will surely create significant budget difficulties for the next president.

Why the rush? Paulson and the Bush administration clearly wanted something done this week. In congressional testimony, Paulson and Federal Reserve Chairman Ben Bernanke argued that any delay increases the risk of a lending freeze and a recession. Democrats in Congress have responded quickly, but it appears there will be haggling over some details.

What's in it for taxpayers? One key point of disagreement is whether the government will take an ownership stake in the surviving banks as a way to recoup taxpayer money once the bad debt is put back on the market. Paulson wants a clean bill, meaning no government stake. That sounds like a bad idea. If we're going to bail out these firms, we're due a return on our investment.

Clearly, the system broke down, in a huge way that threatens the economies of nations all around the world. Some form of government intervention needs to happen. We hope that the best minds of the Bush Administration, Congress and the Fed will find the right course of action.