Big Government, Big Spender

A weekend of frantic activity in Washington’s halls of economic power has produced a government approach that is diametrically opposite from what conservative administrations might be expected to favor—an enormous big-government plan to intervene in the free markets and to have taxpayers buy $700 billion of bad debt from the troubled financial sector. On Saturday President Bush emphasized his desire for direct government involvement and control in his radio address. “ My Administration is working with Congress on legislation which will approve the Federal government’s purchase of illiquid assets, such as troubled mortgages, from banks and other financial institutions. This decisive step will address underlying problems in our financial system. And it will allow financial institutions to resume lending and get our financial system moving again,” said the President. U.S. House Speaker Nancy Pelosi (D-Calif.) responded in a statement that underscored the general agreement—and the looming battle of the thrust and details of the plan. “In working with the Administration, we will strengthen the proposal by ensuring that the government is accountable to the taxpayers in any future actions under this broad grant of authority, implementing strong oversight mechanisms, and establishing fast-track authority for the Congress to act on responsible regulatory reform, she said in a statement, adding, “As I told President Bush yesterday, we will also seek to protect lower- and middle-income Americans, who need to be protected from the fallout of the ongoing Wall Street crisis, by enacting an economic recovery package that creates jobs and returns growth to our economy.” The plan was depicted in broad strokes by Treasury Secretary Henry Paulson (pictured) on Saturday. First, the administration is splitting the difference between the upbeat estimate of a $500 billion pricetag and a more pessimistic $1 trillion one. It has decided to go for a $700 billion bailout that consists of buying of various mortgage assets. The hope is that this will end the panic seizing up credit markets around the globe. But that is a hope, not a certainty.The plan to give the Treasury sweeping shopping powers was presented to legislators Saturday by the Administration and are already being fought over in a struggle by democrrats to include more help to households to the governments largesse towards large financial institutions. The plan would permit the Treasury Secretary to buy, for a two year period, up to $700 billion of mortgage-related assets at one time. However the nature, length of time for holding, or method of valuing said assets is not specified. Already banks and other institutions are lobbying overtime to ensure that the highest possible value will be put on the assets they hope to sell to taxpayers—to minimize their losses from write-offs and to minimize the possible profit taxpayer might make on buying such distressed assets. The plan would cover assets originated before Sept. 17, 2008. The plan gives “broad authority,” according to Reuters News, to Treasury on what might be done with these assets—and what financial organizations might be tapped to handle buying, handling, and selling the assets. The aim, the plan stipulates, is to make sure that financial markets remain stable and the taxpayer is protected in the process. But it also proposes that no court or government agency can review Paulson’s decisions. He would be expected to report to Congress after the first three months and then twice yearly.Overall the plan would force government to up the U.S. debt limit to $11.315 trillion. By Sunday, the battle between Democrats in Congress and the Republican Administration began to take shape as their representatives hit the airwaves. When Paulson spoke on ABC’s “This Week,” he urged Congress to move fast and pass the bill without additional measures. “We need this to be clean and to be quick,” he told the television audience. That said, certain issues need addressing–albeit with all deliberate haste, according to Democrats in Congress, like Representative Barney Frank (D- Mass.), echoing the concerns voiced in the statement by Pelossi over the weekend. He urges, among other things, pay limits on those involved in the plan, and adjustments by Congress to the measure to assure that householders and individuals will benefit and not just large institutions.