The President's address tonight showed an increasingly concerned White House, mirroring a terrified Wall Street over Congress' cool reception to the proposal offered by Treasury Secretary Henry Paulson. Although a deal by week's end is probable, the slow legislative response has caused markets to endure more bleeding. Congress' effort to analyze the plan is, however wise. Widespread Economic collapse will not happen overnight, despite Lehman Bros and AIG. With Warren Buffet's infusion in Goldman Sachs and that bank and Morgan Stanley's transition to bank holding companies, subject to more oversight, investment banks simply don't exist anymore as we knew them. Other banks with investment arms like Bank of America, Citi, and JPMorgan Chase have commercial deposits to back their operations. The economy, like a bridge "structurally deficient," will not suddenly collapse, but is at grave risk.
In perhaps the most sincere show of bipartisanism, the president incorporated a number of the concerns that Democrats and some Republicans had raised after Sec. Paulson and Fed Chair Ben Bernanke presented his plan to Congress Friday. Notably he called for a bipartisan board to oversee the disbursement of the bailout, rather than leave that to Paulson alone, provisions to give taxpayers a chance to earn their money back, and a limit on pay for executives that leave/are forced out.
The president also addressed the anger and frustration felt by many Americans that have remained current on their bills. However, he rightfully noted that this crisis has wider implications and could jeopardize the well being of even the most financially sound Americans.
Absent from the President's description of the events that precipitated this crisis was the role his administration played in permitting this situation to escalate. Though some of these bad loans were made at the end of the 90's, many were made during the recession that opened this decade when soaring home prices were the only positive at the time. Regulators under the executive branch should have sought to curtail the bad loans and limit the deceptive practices that brought about many sub-prime mortgages in lieu of traditional loans needlessly. If nothing else, Pres. Bush and his GOP Congresses should have sought and supported laws that protected consumers and loan applicants.
The "autopsy" as Sen Chris Dodd put it on the Rachel Maddow Show is for another time, however. Unnecessary finger-pointing will not avert this crisis and loading the bill with new regulations and limits on foreclosures will do nothing to sustain the economy. Although a limit on foreclosures may be needed, it must be done carefully so as not to freeze lending further.
Perhaps most frightening of all, however, is that this bailout may not save the economy. Weakness, brought only in part by this mortgage turned market crisis, runs in many segments of the economy. Jobs are in the red for the year, oil remains unstable, and some industries are facing tightness. Perhaps the best medicine that ordinary Americans can give the economy after this bailout has passed is to turn off the TV and go live your life as normally as your finances permit. Normal activity on consumers' part will provide a level of steadiness to an economy desperate for some stability.
*Photo from New York Times, (nytimes.com)