TBO.com - TBO is Tampa Bay Online

Economy Will Continue To Slide Until Credit Freeze Is Resolved

ADVERTISEMENT

The Tampa Tribune

Published: September 30, 2008

The biggest financial bailout in U.S. history failed in the U.S. House on Monday, with Republicans solidly rejecting the plan, and many Democrats joining them, even though President Bush said passage is essential to avoid bank failures and financial panic.

News of the vote rang alarm bells on Wall Street. Stocks fell sharply and financial experts said the bigger danger was in the less visible credit markets, which are drying up.

People are having trouble borrowing money to buy cars and homes, and businesses are having trouble borrowing for routine, short-term needs.

A new rescue package must be negotiated immediately, one that stabilizes financial markets with the least possible amount of taxpayer risk.

The issue has divided both parties and left voters angry that banking and mortgage executives made huge fortunes while their companies were going bankrupt and many innocent investors were wiped out.

Despite the widespread disgust the public has for the $700-billion plan, Bush and the leaders of both parties are right. The economy is on the verge of crisis and needs a phased intervention to restore confidence and stabilize home values.

The reluctance of many conservatives to go along with the plan is understandable. As one Texas Republican explained, allowing the federal government to buy the assets of financial institutions represents "the slippery slope to socialism."

They also need to understand that another slope leads in the same direction. If the economy continues to decelerate, more people will lose their jobs and their homes. As more people feel they have nothing to lose, they will demand dramatic federal interventions that would make the proposed bailout seem like small potatoes.

Principled opposition to the plan also comes from the other side of the aisle. Democratic Kathy Castor of Tampa joined 94 Democrats who voted no. Castor explains that the plan does too little to help middle-class homeowners and too little to protect taxpayers.

Clearly the hastily written plan lacks credibility. In trying to sell it, Secretary of the Treasury Henry Paulson came across like a general demanding power. He took a firm lead while Bush appeared depressed and uncertain. Together they left many people more afraid of the intervention than of the underlying economic problem.

But Bush's warning last week bears repeating: "More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically."

Bush and Congressional leaders need to try again. This time, instead of frightening the public and playing petty politics, they should stress how the plan will stabilize local economies and help typical taxpayers.

The fact is, mortgage assets are for sale at fire-sale prices. The only question is who will buy them and who will profit when housing prices recover.

The recovery plan should be sold as an emergency, patriotic measure to keep foreign governments and investment groups from gaining ownership of many of our homes, farms and stores.

It should be sold as what it is, an investment in the future of our neighborhoods and securities.

Share this:

Loading Comments...

Email Print

ADVERTISEMENT