By Brent Budowsky - 09/29/08 07:23 PM EDT
With the chaos, controversy and public unrest surrounding the banking bailout, both parties could promptly agree on an immediate $150 billion bailout package structured as the Paulson proposal, plus an urgent economic stimulus of $100 billion while all parties regroup.
There should be an all-out, all-party, public- and private-sector attempt to achieve an effective voluntary freeze on foreclosures while Treasury Secretary Henry Paulson goes to business with his first $150 billion, and Congress and the president agree on an economic stimulus.
The economy faces acute crises while credit and equity markets are dangerously unstable. Yet public unrest escalates; chaos reigns; the policy is in disarray. If House and Senate leaders cannot bring their bodies to the larger proposal now, effective alternative action is possible.
The truth is, the Paulson program is untested. It would be rational and fiscally sound to immediately give Secretary Paulson two to three months’ of funding to move his process forward. This would have immediate impact yet still give Congress, the president and the public reasonable time to evaluate its effectiveness and alternatives.
The truth is, there is profound difference of opinion, with the economy in crisis, and the public and markets lacking confidence. The worst enemy is political and financial gridlock.
There is nothing wrong, and much right, with passing a $150 billion down payment for Paulson, while acting urgently to stimulate the economy as leaders in both parties calmly consider further options.
In a column in this paper in November 2007 and a series of columns throughout 2008 I have warned, again and again, about the contagion of bad credit and tight money that would spread from sector to sector, consumer to consumer, product to product and nation to nation. These warnings were aggressive, repeated and largely ignored.
If assets are undervalued at a time of weak liquidity and a slowing economy, a foreclosure freeze makes perfect sense to stabilize the economy, limit deterioration in housing prices and give homeowners facing short-term hardship the same window for help we should give financial institutions.
There is no reason the president, Congress and financial leaders cannot agree in principle to a voluntary foreclosure freeze while the Paulson plan begins to take effect and is evaluated.
There is no reason the president and Congress cannot agree on a fast, short-term economic stimulus that would simultaneously provide support to middle- and lower-income Americans and give support to the national economy.
There is no reason the president and Congress cannot enact, to win Republican support, a capital gains or business tax holiday for those investors who buy assets from Treasury during the initial $150 billion of the Paulson program, which would attract private capital, increasing the net asset value for the Treasury sales.
This alternative approach is balanced. It gives the Treasury immediate money to strengthen markets and liquidity. It gives Congress and the public fair time to evaluate whether and how the program works. It gives middle-income Americans an immediate boost that would provide support for the national economy. It gives the Federal Reserve Board and global central banks a window for a prompt, coordinated global interest rate cut.
This approach is sensible, realistic and preferable to a hastily enacted $700 billion program force-fed under political duress.
Budowsky is contributing editor of Fighting Dems News Service. He can be read on The Hill Pundits Blog and reached at firstname.lastname@example.org.