Americans don't have to have a 401(k) to be worried about the havoc on Wall Street. They don't have to be fiscal conservatives to cringe at the billions the federal government has added to its balance sheet to bail out international insurance giant AIG, mortgage lenders Fannie Mae and Freddie Mac, and investment house Bear Stearns. Their anxiety over joblessness, diminished buying power and a depressed housing market have intensified with the wild fluctuations in the stock market and the accompanying credit crunch. And the Bush administration's selective rescue of companies has added to the anxiety as many have wondered: What's next?
Treasury Secretary Henry M. Paulson Jr. and Federal Reserve Chairman Ben S. Bernanke answered that question Friday by announcing an unprecedented government rescue plan. While offering few details, they proposed a "troubled asset relief program" in which the federal government would buy or assume hundreds of billions of dollars worth of bad loans and temporarily guarantee money market funds in which millions of Americans have invested. It's the ultimate buyout with a sweeping agenda to stabilize the country's financial system and battered housing market.
This is an emergency - but interim - measure to safeguard investments and restore investor confidence in the system. Congress should give the Treasury and the Fed the authority they need to absorb this bad debt, which should jump-start the capital markets and relieve the credit crunch. There's little time for political wrangling or ponderous debate, which puts the onus on Mr. Paulson and Mr. Bernanke to get this right. But while they're at it, Congress should allow bankruptcy judges to help homeowners who are in the grip of foreclosure.
What must not be forgotten here is the cause of the U.S. financial woes: the unfettered promotion and peddling of risky mortgages, Wall Street's feverish efforts to profit from them, and the administration's disinterest in policing the industry. What's needed is a return to a strong regulatory and oversight system, but Mr. Paulson has said that's a debate that will have to wait for another day.
Presidential candidates John McCain and Barack Obama were dueling over the economy all week. Mr. McCain seems to have forgotten his preference for deregulation, choosing instead to cast himself as the sheriff of Wall Street and a critic of corporate greed. Mr. Obama has called for tougher regulation of financial markets but conveniently sidesteps how the massive new obligations piled up by the government bailout of Wall Street could crimp his promise to cut taxes for the middle class while boosting spending on education and health care.
The senators should stop the verbal sparring and focus on the daunting challenge ahead.
America's workers and investors want to know how they intend to protect their savings, police Wall Street and restart America's economic engine.