Hank Paulson claims that Congress has to act now or the whole financial system will collapse. But, Robert Kuttner points out, it's better to do this overhaul right -- from the bottom up rather than from the top down -- than to do it in great haste:
Paulson's tactic of demanding instant action because impending catastrophe recalls how the same Bush Administration rushed through the USA PATRIOT Act. But there are two key differences. After 9/11, American citizens were terrified and willing to give the Bush administration whatever it wanted. And Congress totally caved. This time, citizens are frightened -- but not gulled. Congress is hearing from constituents that the Paulson plan is an outrage. The easy vote is to oppose it.
So let's stipulate that Democrats get the other major provisions that the public interest requires. These include:
- Limits on executive compensation
- A companion economic stimulus package
- More help for distressed homeowners
- An option for government to get some stock in companies it helps
- An oversight panel to approve Paulson's proposed deals
But what about the core of the Paulson plan itself? Here, Congress needs to think outside the box. Paulson's basic idea is to have government buy up $700 billion worth of dubious mortgaged-backed securities, hold them for a time until normal markets resume functioning -- is both necessary and sufficient. The plan has three larger purposes: recapitalize banks; get bad paper out of the system; and restore confidence generally so that the downward spiral ceases and the frozen credit markets unlock.
Kuttner goes on to explain what a good alternative plan would look like. Read the rest here.
--The Editors
