The Bush administration has quickly changed strategies and dramatically raised the stakes as it races to ease the most serious economic crisis since the Depression. The president swiftly moved Friday from responding case-by-case to asking Congress to work on a broad bipartisan response over the weekend. The result could put taxpayers on the hook for hundreds of billions of dollars in bad mortgage debt, but doing nothing could inflict more pain on American families.
Literally overnight, it seems, there was an epiphany that the crisis would not be eased by choosing which investment banks to bail out, rescuing an insurance giant or taking control of home mortgage players Fannie Mae and Freddie Mac. What began months ago as a subprime mortgage mess has cascaded throughout the economy, threatening banks and other financial institutions that did not make the riskiest loans or seek the highest profits. Credit markets have seized up and are starved for cash. Nervous investors are pulling billions out of money market mutual funds, considered one of the safest investments around. That prompted the government on Friday to give those funds the same federal protection extended at banks to checking and savings accounts, and to certificates of deposits. Anyone watching the stock market this week risked whiplash.
A grim President Bush on Friday called this a "pivotal moment'' for the economy and said government intervention is essential. Such a grave assessment from a president who promotes free markets and detests regulation underscores the necessity for a coherent response that has been missing. The result is that Congress, which looked toward another do-nothing week before leaving Washington for the year, could be voting on historic legislation within days. With the election just six weeks away, the window will be narrow for a bipartisan response embraced by the lame-duck Republican president and the Democrats who control Congress. But that is what Americans deserve from Washington at a most uncertain moment.
As the plan develops for the government to lift risky mortgage debt of questionable value off the backs of financial institutions and onto taxpayers, there ought to be some general guidelines. It has to benefit American consumers, not just Wall Street. It cannot be a complete bailout for lenders and speculators who engaged in the riskiest behavior, or for stockholders who blindly sought the biggest profits. It should be temporary, and it should protect taxpayers who should share in any potential upside. If home foreclosures can be reduced, many of these mortgages should regain at least some of their value over time.
Just days ago, there remained hope that a broader response could wait for John McCain or Barack Obama to take office in January. That is no longer the case, and neither McCain nor Obama are inspiring much confidence. McCain in particular sounded more panicked than reassuring, both attacking Obama and distancing himself from the Bush administration in his sudden embrace of more regulation and bureaucracy. His pronouncement that he would fire the Securities and Exchange Commission chairman was appropriately called "unpresidential'' by the Wall Street Journal editorial page. At least Obama recognized the gravity of the moment as he sketched out some general principles and avoided political potshots.
Ignore the attack ads from both campaigns this weekend. Pay attention to the bailout proposals that come from Washington and whether they have broad bipartisan support. The policy points are far more important than the political ones to protecting personal savings, home mortgages and small businesses.