Cash for trash: Bailout is odious but necessary
The American people are outraged, and rightly so. They don't see why they should be put on the hook for $700 billion to bail out Wall Street sharps who drove the financial system toward a cliff in a rapacious quest for multimillion-dollar bonuses.
Trouble is, that isn't the whole story. If the financial system is allowed to go off that cliff, it will take all of us down with it. Personal savings. Retirement accounts. Jobs.
We aren't bankers or economists or hedge-fund whizzes, so we can't claim to understand all the details of this mess. But we do believe that Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke are not crying wolf when they say that the government must step in with a massive and decisive plan to buy up mortgage-backed securities that are weighing down banks. Because no one knows exactly what these securities are worth, and the housing market is continuing to fall, no one will lend anyone else money. Without credit, our economy will grind to a halt.
So it is good that negotiators from both parties in Congress have agreed on a set of principles to tweak the administration's plan to buy up toxic securities. We like that it would authorize the $700 billion the administration asked for, but would release only $250 billion immediately, followed by another $100 billion if the Treasury secretary certifies it is needed. Congress could stop the release of the final $350 billion by resolution.
The administration's original proposal gave the treasury secretary unlimited authority, without review. That's too much. The congressional compromise would provide some checks on the checks: an oversight board, an independent inspector general and audits by the General Accountability Office, an arm of Congress.
The congressional principles also provide some relief for homeowners in danger of foreclosure. It's not clear how, but we believe that probably is fair in some cases. And it's good business.
Finally, the treasury secretary would be required to set limits on executive compensation in companies that participate in the program. That won't save much money, but it might help cool taxpayer indignation.
That's enough for this package. Get it done.
But when the new government takes office next year, we hope to see fraud prosecutions and stockholders dragging CEOs into court. Americans rightly want to see heads mounted on the wall. Because these fat cats haven't just mortgaged the present. They've mortgaged our future.