Everybody involved in the Wall Street bailout crisis should step back, take some deep breaths and give serious thought to what is about to be done. If the financial crisis is as dire as Treasury Secretary Henry Paulson claims, that is all the more reason to pause and assess realistically the bailout proposal now on the table and to consider whether there are less draconian measures more suited to the task that don’t require effectively nationalizing the financial sector of the economy.
First, the draft text was changing rapidly Monday night but several troubling provisions remained that exempted the Treasury Department from proper judicial accountability. No man should be above the law, not even Paulson. There was progress on assuring adequate legislative oversight, but mandatory quarterly reports to Congress, GAO audits and a congressional oversight panel are useless in the absence of prompt and comprehensive public-disclosure requirements binding on the Treasury and Congress. With $700 billion or more at stake, more oversight and accountability are called for, not less.
Second, a related point is the need for greater transparency in the whole process. It is troubling that more than a few members of Congress came away from closed-door briefings with Paulson last weekend saying what they heard scared the daylights out of them. The public cannot make wise decisions regarding the present crisis if they do not know the full truth about its seriousness. Paulson and those he briefed need to step up and level with taxpayers. And there should be no hesitation about adopting the suggestion from Sen. John McCain and others that all transactions authorized in a bailout be posted on the Internet in an accessible, searchable format. Anything less will be an invitation to the worst kind of insider lobbying abuses, which undermine the public interest.
Third, is it too much to ask Congress to resist, for once, the temptation to use the urgency of the crisis to create a legislative Christmas tree? Democrats should think twice about seeking to impose ideologically motivated add-ons such as giving the federal government authority to regulate corporate compensation, or to leverage passage of a second “economic stimulus package” that includes bailouts for other ailing industries.
Fourth, there are credible alternatives to the Bush administration’s bailout approach. Economist Brian Westbury, for example, suggests allowing troubled firms to erect an accounting firewall around at-risk assets created between December 2003 and August 2007 by isolating them from the rest of their balance sheets and then holding those assets to maturity. The government’s main role would be in providing insurance for the sequestered assets instead of buying them outright. By comparison, the Bush bailout looks like a bum’s rush for economic freedom.