September 23, 2008

New York Times Editorial

Trust Me

The nation’s financial mess was caused to a great degree by a culture of lax regulation and even less oversight, in which ordinary Americans were told to trust the government and Wall Street to do the right thing.

President Bush’s proposed solution, which he wants Congress to authorize immediately, tells taxpayers to write a check for $700 billion and trust the government and Wall Street to do the right thing — with inadequate regulation and virtually no oversight.

We agree with Senator Barack Obama that the administration’s plan lacks regulatory muscle, and we agree with Senator John McCain when he said: “When we’re talking about a trillion dollars of taxpayer money, ‘trust me’ just isn’t good enough.”

Nearly everyone agrees that the there will have to be another very big bailout. The financial system, gorged on its own excesses, cannot stabilize without intervention. The $700 billion would be used to buy up the bad assets that are presumably clogging the system.

To protect the American taxpayer, Congress must ensure that the bailout comes with clear ground rules and vigilant oversight. In an appalling, though familiar fashion, the ground rules proposed by the Bush administration are wholly unacceptable — as are its tactics.

At 1 o’clock in the morning on Saturday, the Treasury Department released its “Legislative Proposal for Treasury Authority to Purchase Mortgage-Related Assets.” The witching hour timing seemed designed to underscore the urgency of the effort.

The proposal, which is now being negotiated with Congressional leaders, would give the Treasury secretary the authority to buy any assets from any financial institution at any price that he deemed necessary to provide stability to the financial markets. And it asserts that neither the courts nor any administrative agency would be allowed to question or review those decisions.

We’ve seen this kind of over-reaching from the Bush administration before. It has usurped far too many powers under a banner of urgency — think wiretapping — and abused those powers. Now, Congress and the American people are being told that unless they quickly approve sweeping executive powers for the bailout, capitalism may collapse. Even if this administration weren’t so untrustworthy, rushing ahead would be a bad idea.

No one is saying the financial crisis is not serious and urgent. We know that it will be hard for lawmakers to resist White House pressure — especially if the Dow continues to drop. But it is essential that Congress takes the time to get the bailout right, even if it cuts into lawmakers’ campaigning.

Treasury Secretary Henry Paulson must craft and execute the bailout in a way that persuades Wall Street and the global financial system that they will be saved while protecting the American taxpayers’ $700 billion investment. Balancing those complex mandates is made more difficult by the fact that Mr. Paulson hails from Wall Street and could, if he wanted to, return to Wall Street.

The only way to avoid the appearance of a conflict of interest is for Mr. Paulson to welcome full and transparent legislative and judicial review.

A counterproposal now being developed by the Democrats would require firms that sell their troubled assets to the Treasury to give the government stock — an idea that has populist appeal but also needs to be vetted carefully. It also would try to help homeowners, who are left out of the administration’s plan entirely, allowing them to have their mortgages modified under bankruptcy court protection. That step that should have been taken long ago to avert the foreclosures and house price declines that are at the root of the crisis.

Senator Christopher Dodd, chairman of the Senate Banking Committee, is also calling for an oversight board of federal officials and other experts. We believe that is still not enough. But all of the competing proposals provide interesting starts for a serious debate.

There is time to have it.