[corp-focus] The Financial Crisis: How and Why Congress Should Play for Time

[robert weissman]

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The Financial Crisis: How and Why Congress Should Play for Time
By Robert Weissman
September 24, 2008

Here's the situation: Thanks to its own inability to control itself, 
Wall Street is now facing a crisis unmatched since the Great Depression. 
Unfortunately, a collapse of the financial sector would not only hurt 
rich investors, it would devastate the global economy. So, government 
action is imperative.

Treasury Secretary Henry Paulson and Federal Reserve Chair Ben Bernanke 
say immediate Congressional legislation is imperative. And Congress is 
adjourning at the end of this week, with Members eager to get back to 
their districts and states to campaign.

But there is no way to handle the complexity of a $700 billion bailout 
in a few days.

There are some really hard questions about how to structure a Wall 
Street bailout program. Financial firms have to be subsidized, but they 
also have to feel some serious pain. Figuring out who to subsidize, and 
how much, is tricky. Determining how to ensure taxpayers get the best 
and fairest payback from the subsidized financial institutions is 
complicated. And developing a transparent and accountable structure to 
administer a $700 billion program buying and selling exotic securities 
is no easy matter.

Meanwhile, it would be unconscionable to bail out Wall Street but not 
protect homeowners and renters in homes that may be foreclosed on. 
Between allegedly super-sophisticated Wall Street hot shots and people 
who were fooled into taking bad mortgages -- or who have the 
misfortunate of renting from a landlord who's being foreclosed on -- 
it's obvious who is more deserving of government assistance. But 
Congress and the President have not been able to agree on plans anywhere 
near commensurate with the scale of the problem over the past year-plus. 
It's very hard to see how a proper and sufficiently scaled system of 
protection and assistance for homeowners and vulnerable renters is 
agreed upon in a few days.

The current financial mess is the outgrowth of a quarter-century 
rollback of regulations that controlled what financial firms could do, 
and protected financial titans from their own worst instincts. Wall 
Street is chastened right now, but it is a 100 percent certainty that 
the speculative culture will reemerge with a vengeance -- and in much 
shorter order than many now seem to believe -- unless regulatory 
standards are imposed to prevent a repeat of the current disaster. 
Legislation affording Wall Street what may be the biggest bailout in 
history is the time to attach new, robust regulatory rules. There are a 
lot of good ideas floating around about sound financial regulation, but 
the details are extraordinarily intricate and convoluted. It's not the 
kind of thing you can easily handle in a few days, even if you burn the 
candle at both ends.

Given the time pressure and the realities of the legislative process, is 
there anything Congress can do, other than make some minor adjustments 
to the Paulson proposal that asks Congress to give the Treasury 
Secretary $700 billion and trust him to make good decisions?

Yes. Congress can play for time.

Here are two ways Congress can give itself more time to do justice to 
the bailout legislation.

Option One: Congressional leadership commits itself publicly to doing 
bailout legislation. The leaders commit to a hard date -- maybe a week 
from Friday, maybe two weeks -- and announce that the Congress will 
reconvene on that date, with a guaranteed vote on the same day. They 
might even usher through legislation now that limits the length of 
debate and guarantees an up-or-down vote. The urgency to act now 
reflects Wall Street's crystallized panic. An assurance of pending 
action should quiet the panic enough for the economy to continue to 
function.

A variant of this idea is that Congress commit to adopt bailout 
legislation in a lame duck session, after the election. Even with a 
guaranteed vote, this option would enable more extended investigation, 
hearings and debate. But it would drag the process out longer, and a 
judgment would have to be made that the financial markets could remain 
calm enough, for long enough.

Option Two: Congress adopts the Paulson plan this week, with two major 
modifications. Instead of the requested $700 billion, Congress 
appropriates $100 billion. Congressional leaders commit to reconvene in 
a lame duck session, and guarantee a vote on the remaining $600 billion. 
However, the $600 billion package includes provisions that direct how 
the bailout is to be conducted, includes protections for homeowners, and 
imposes meaningful regulatory standards. The second key feature of the 
initial appropriating legislation is that it specifies firms benefiting 
from the $100 billion bailout fund agree to accept the terms imposed on 
the $600 billion bailout fund. That way, only the most troubled firms 
step up right away for bailouts, and no firm is able to escape the 
conditions imposed after Congress has more time to think through the 
implications of the bailout deal.

There is real urgency to act. But Congress still has the ability to 
dodge the Paulson steamroller and buy some time to do legitimate 
legislating.


Robert Weissman is editor of the Washington, D.C.-based Multinational 
Monitor, <http://www.multinationalmonitor.org> and director of Essential 
Action <http://www.essentialaction.org>.

(c) Robert Weissman

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