The Government and the People Need to Be The Insurer of Last Resort, Not the Idiot of Last Resort
That line comes from an excellent summary of not just how the US got here, but how it can get out without turning the United States into a plutocracy. The plan is simple enough:
1) Buy up mortgages at a discount and give people new fixed rate mortgages. The government shares in further house appreciation (only fair since it bailed the homeowner out). This stabilizes mortgage prices and helps people and banks both. It is essentially identical to what FDR did with the Home Owners Loan Corporation (HOLC), and we know how to do it. Initial price tag? Probably around 20 billion.
2) Use the FDIC (the folks who take over failed banks) to take over failed mutual and money market funds, make sure the investors get as much money back as possible, liquidate the funds in an orderly fashion (or keep them operating if necessary) and if they are kept alive, kick the people who screwed them up to the curb and change how they do business.
3) Declare a national emergency, with judicial review (unlike Paulson’s seizure of ultimate power) and use the authority to review all purchases of banks, to institute oil rationing if necessary (or simpler procedures like "every street now has a 55 mile an hour speed limit, if it is normally higher). Also allows release of oil from the reserve, if necessary.
4) Expand the safety net such as food stamps, employment insurance, welfare and so on. We know this is going to get worse no matter what we do, so why aren’t we taking care of ordinary people?
Very importantly, both the FDIC and the new HOLC would be supervised by the Congressional Budget Office. Money would be set aside for them, but the head of the CBO would dole it out as needed and make sure it is being spent appropriately. This bailout should not go through the Treasury, Hank has just proved that he cannot be trusted with it.
This plan allows for an orderly determination of what securities are really worth. It makes sure that those companies that have driven themselves into bankruptcy do not continue to be run by those who mismanaged them. It helps ordinary Americans and not just banks. It allows the crisis to be dealt with now, while acknowledging that the longer term questions of how to reform and re-regulate the system must be dealt with by the next President and Congress, not by George Bush, a man who has repeatedly proved that neither he nor his administration can be trusted with this sort of power and money; a man whom most Americans do not trust.
I hope that Obama will get behind and support a plan similar to this one, a plan that works to meet the principles he has put forward. I hope that Nancy Pelosi, Harry Reid and, indeed, all members of Congress will likewise act on their fundamental duty to all Americans, not to just bankers and will remember how this administration has abused the trust, power and money they have given it in the past.
It’s not time to give the Bush administration one last blank check, and even more unchecked power. Rather, it is time for men and women who care about their country to band together to help every American get through this crisis in a way which is fair to all and which does not write a blank check to those who caused the crisis.
Reid, Pelosi, Obama—your final moment of truth in this Age of Bush is upon you. Will you aid him in one last grab for power and money, or will you bring an end to his age and the beginning of a better age, led by you?
“Congress will respond to the financial markets crisis by taking action this week in a bipartisan manner that will protect the taxpayers’ interests. The Administration’s $700 billion proposal does not include the necessary safeguards. Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive executive compensation.
“We will not simply hand over a $700 billion blank check to Wall Street and hope for a better outcome. Democrats will act responsibly to insulate Main Street from Wall Street.
“As we proceed to deal with this crisis, this is clear recognition that the party is over for the Bush Administration’s anything goes, failed economic policies that have damaged our economy, undermined the middle class and further pointed out the need for a New Direction.”