The Washington Post, New York Times, and Los Angeles Timeslead with news that the Bush administration and congressional leaders are moving closer to agreeing on the $700 billion bailout plan for financial firms. The LAT says that in its rush to pass the plan, the Bush administration is agreeing to measures that “would have been inconceivable even a few weeks ago.” But deep skepticism remains on both sides of the aisle, and suddenly lawmakers aren’t being shy about questioning whether the plan would really succeed in shoring up the nation’s ailing financial system. The WP points out that some lawmakers are now saying it might be unrealistic for them to pass a plan by Friday. And as doubts increased in Capitol Hill, investors responded in kind and continued to send the markets on the dizzying rollercoaster ride that has been all too familiar lately. The Dow Jones industrial average tumbled 372 points, or 3.3 percent, which more than erased Friday’s huge gains. “It marked the first time in the Dow’s history that it has moved more than 350 points, four days in a row,” notes the Wall Street Journal in a Page One piece.
The WSJ’s world-wide newsbox leads with a look at the presidential candidates’ assessments of the bailout plan. Neither candidate said how he would vote if the bailout reaches the Senate floor, though they agreed on several key aspects they want to see changed. Barack Obama and John McCain both want to put limits on executive pay as well as increase oversight of the Treasury while also demanding greater transparency of how the money is spent. USA Todayleads with word that the Department of Veteran Affairs will publish new regulations today that will “substantially increase” the disability benefits for veterans with mild traumatic brain injuries. The move marks the first time the government has officially acknowledged that even those with mild symptoms can struggle to make a living when they get back home. These veterans could receive $600 a month, whereas they now collect a mere $117. The department expects somewhere between 3,500 and 5,000 veterans to benefit from the new regulation.
The White House was busy ratcheting up the pressure on lawmakers to pass the bailout plan quickly, warning that failing to do so could have dire consequences. The WP notes that the scene is “reminiscent” of the days after the Sept. 11 terrorist attacks, when lawmakers were under deep pressure to act quickly. Still, lawmakers were adamant that they wouldn’t let the administration railroad them into anything even as they kept on insisting that they’re working against the clock to come up with a plan that everyone can agree on, although it seems clear that in order to pass many will have to accept less-than-ideal measures.
The LAT points out that the key negotiations are now taking place between Treasury Secretary Henry Paulson and Rep. Barney Frank, chairman of the House financial services committee. Although any plan must also pass the Senate, the administration is betting that if it can get the House to go along then the Senate will be forced to follow suit.
So, if everyone agrees that a bailout will ultimately be approved, what’s the holdup? It would be easy to say that the devil is in the details, but the disagreements go far beyond a few footnotes or commas. In broad terms, it seems the Treasury has agreed to demands that an independent oversight board be created to keep tabs on how the bailout is handled. Everyone also points out that the administration appears to have agreed to a Democratic demand that the government assist homeowners at risk of foreclosure. But key disagreements remain, including on a proposal to limit executive compensation at companies participating in the bailout as well as a provision that would make it easier for bankruptcy judges to modify mortgages for homeowners who are at risk of losing their homes.
The NYT says that the administration officials and lawmakers are close to an agreement on whether taxpayers would be simply buying up the toxic securities or whether the government would also get the right to buy stock in the companies it helps dig out of a financial hole. But everyone else says that’s still a key sticking point because Treasury officials fear it would limit those willing to participate in the program since only banks that are sure to fail would be willing to give the government stock. Democrats insist the point is critical so taxpayers could benefit if the companies’ stock prices increase. “If this is an investment, the taxpayer should not be treated as dumb money,” Rep. Rahm Emanuel said.
It would be a mistake to think of these disagreements as a merely Republican vs. Democratic issue as some of the harshest criticism of the bailout came from Republicans. “I am concerned that Treasury’s proposal is neither workable nor comprehensive despite its enormous price tag,” Sen. Richard Shelby of Alabama, the senior Republican on the banking committee, said. “It would be foolish to waste massive sums of taxpayer funds testing an idea that has been hastily crafted.” Newt Gingrich predicted that as time goes on more Republicans will be speaking up against a plan that goes against all the free-market rhetoric many have been espousing for years. “I think this is going to be a much bigger fight than [Bush] expected,” Gingrich said.
While skepticism grew on Capitol Hill, investors also began to think twice. After two days of market gains when investors seemed to treat the government bailout as a panacea, they suddenly began to worry that perhaps it won’t be a cure-all and, in fact, could make things worse by increasing the deficit. There was perhaps no clearer sign of these worries than in the currency markets, where, as the WSJ points out, “the dollar posted its worst single-day percentage drop against the euro, 2.5%, since the European currency’s inception nine years ago.”
Along with that plunge in the U.S. currency came a huge increase in the price of oil that the WP says saw “its biggest one-day jump ever in dollar terms.” In a Page One analysis, the WP says the drop in the currency markets is a clear sign that investors around the world are worried the U.S. economy is nowhere near rock bottom. “Growth is going to be slower, the budget deficit higher, but mostly, the whole U.S. financial system has been thrown into question,” one analyst said. Meanwhile the massive bailout is raising questions about how much debt the United States can take on without raising taxes or cutting spending. Some analysts say that by not outlining how the bailout will be financed, many are assuming the government thinks the solution is just to print more money and deal with inflation later. “[I]f you think inflation is the answer, take a trip to Zimbabwe and see how it’s working for them,” one analyst tells the Post.
Then there’s also the not-inconsequential question of how much the government will pay for the toxic mortgage securities held by banks. As the WP points out inside, government officials will have to answer “the same question that has vexed the brightest minds on Wall Street for more than a year: What are the darn things worth?” The key is no one knows, and many are worried the government will end up paying way too much for them. Then again, paying too much for them is exactly what the banks need in order to return to their normal operations. It’s a “tricky balancing act” that some think will simply end up demonstrating that banks need much more capital than many thought.
In its own front-page analysis, the NYT notes that while most agree some form of bailout is needed, many are growing deeply skeptical about the demands from the administration that the plan has to be approved right now or we risk falling into another Great Depression. While some are indeed worried that the government will end up paying too much, ultimately many are uncomfortable with the fact that the bailout “is being sold as a must-have emergency measure by an administration with a controversial record when it comes to asking Congress for special authority in time of duress.” There are also those who question the wisdom of giving so much power to Paulson, “a guy who totally missed this, and has been wrong about almost everything,” as one analyst put it.
In a scathing piece, the NYT’s Andrew Ross Sorkin says that Paulson is asking for “the financial equivalent of the Patriot Act” that would give the Treasury secretary “perhaps the most incredible powers ever bestowed on one person over the economic and financial life of the nation.” The bailout would not only be the biggest rescue as has often been repeated, it would also amount to “the most amazing power grab in the history of the American economy.” And in the it-would-be-funny-if-it-weren’t-so-troubling department, Sorkin points out that last week Venezuelan President Hugo Chávez had some choice words for his friends up north: “They have criticized me, especially in the United States, for nationalizing a great company, CANTV, that didn’t even cost $1.5 billion.”
It may be the end of the financial world as we know it, but the presidential candidates feel fine. The Post points out that while lawmakers are busy approving a plan that could take the federal deficit toward the trillion-dollar mark, neither candidate really thinks that’s reason enough to change his economic plans. The financial system is collapsing all around us, but the candidates are choosing to focus on such deadly important issues—such as who has bigger lobbying ties to Fannie Mae and whose advisers got the biggest “golden parachute”—that many economists can’t help but be baffled and look at the campaign as a mere “sideshow” to the real news of the day, says the Post.
The candidates’ reluctance to take on the biggest issue of the day might be understandable, though, because sometimes when they try they just make things worse for themselves. In the WP’s op-ed page, George Will writes that McCain “is behaving like a flustered rookie playing in a league too high.” The conservative columnist says that McCain’s “childish reflex” to insist that the chairman of the Securities and Exchange Commission “betrayed the public trust” and should be axed “is a harbinger of a McCain presidency.” Will even goes as far as to wonder whether conservatives can really trust McCain to make good judicial selections because of his “impulsive, intensely personal reactions to people and events.” While Obama might not be ready to sit in the Oval Office because of his inexperience, it “is arguable that McCain, because of his boiling moralism and bottomless reservoir of certitudes, is not suited to the presidency.”