President Bush's address to the nation Wednesday night and today's return to Washington by Sens. John McCain and Barack Obama underscore the seriousness of this historic economic crisis. As angry as Americans are about the public cost, a catastrophic meltdown must be averted by a bipartisan rescue plan.
Not surprisingly, the administration's $700-billion bailout proposal has been a tough sell to both Republicans and Democrats in Congress. It gave too much authority to Treasury Secretary Henry Paulson to decide which troubled securities to buy for how much. There initially was no oversight, transparency or accountability. It was entirely aimed at Wall Street and did not offer direct help to homeowners facing foreclosure. No wonder the blogs, cable shows and letters to the editor are filled with furious protests.
Yet this is no time to play the blame game or complain about greedy investment firms and the lack of government oversight. This is no longer about rewarding risky behavior on Wall Street or forgiving irrational spending by too many home buyers, including many in Florida. The economic cancer that originated in subprime mortgages has spread too far, and the free market appears incapable of healing itself. However distasteful, this is going to require significant government intervention at considerable public expense.
As Bush explained, "our entire economy is in danger'' and a deep recession looms if Congress does not act. This is a crisis that threatens all Americans — including the majority who have worked hard, spent responsibly and saved for the future. A depressed home market will not rebound if potential buyers cannot obtain mortgages. Consumers and businesses will not be able to obtain credit on any terms, home values will fall further and more financial institutions will fail. Life savings in retirement accounts tied to the stock market will be in jeopardy.
Floridians are particularly vulnerable. The housing market has not recovered, and the state is among the nation's leaders in home foreclosures. The unemployment rate continues to rise, and more shuttered restaurants and storefronts are popping up. The state already faces a $3.5-billion shortfall in 2009-10. If this national crisis is not addressed, the outlook for Florida will be even grimmer as the country slips into a recession.
But any bailout cannot be a blank check that the Treasury Department can write at its discretion. As Bush acknowledged, there has to be some oversight by an independent bipartisan panel. There has to be transparency. The troubled assets should not be purchased at premium prices. Taxpayers should share in any gain if the bailout succeeds. It is not clear yet whether the best approach would be to directly invest taxpayer money into financial firms, or for the government to acquire stock in firms that sell it their troubled assets. Both approaches have their drawbacks.
To directly help homeowners facing financial ruin, the package should allow bankruptcy judges to adjust the terms of mortgages for those who have a reasonable chance of avoiding foreclosure. Paulson also showed new support Wednesday for limiting pay and severance packages for Wall Street executives whose firms are helped by the bailout. That is critical to calming angry voters and providing cover for skittish lawmakers.
Bush invited McCain and Obama to the White House to join congressional leaders today to work on the rescue plan, a positive step. The candidates also issued a joint statement that hit the appropriate notes about the need to put politics aside to respond to the crisis. Bush is a lame duck with low approval ratings and has little political clout left in Washington or with the public. The next president will have to carry out any bailout, and both candidates should be there to help reach a consensus. Friday night's debate can wait.