Wall Street bailout: Just say no

Wall Street, commercial banks and mortage companies have gotten themselves into an enormous mess, either by willfully (and in the short-term, profitably) making mortgage loans to unqualified borrowers or by buying up securities secured by those bad loans, not because the underlying collateral was anything less than toxic, but because they believed a "greater fool" was available to buy those securities from them. Now that those loans and securities have been exposed as being worth far less than face value, the financial titans find themselves sitting on a pile of overpriced assets for which no buyer is stepping forward.

Until now. The Bush Administration, which has long preached the virtues of a laissez faire free market and railed against government regulation of and intervention into the financial markets, has proposed a $700 billion bailout of the feckless financial industry in which the Treasury Department would buy up many of these bad loans. In one sense this bailout is indeed needed - with these mortgage assets no longer representing a viable source of liquidity, the financial companies have severely tightened up their extension of credit, thus imperiling what is already a fragile economy. But apparently, as proposed by the Bush Administration, this bailout comes with no strings attached - no protections for taxpayers whose hard-earned money will be used to pay for the bailout, no provision for protecting homeowners from losing their houses to foreclosure by the very financial institutions which never should have made the loans in the first place and, most critically, no new regulation or oversight of the financial industry to prevent this fiasco from ever happening again.

And, not surprisingly from an administration which has shown a remarkably cavalier attitude towards the Constitution and the separation of powers among federal government branches, the Bush proposal would free the Treasury Secretary from any oversight of the judicial system. All that would be required is a periodic report to Congress on the status of the bailout program. As anyone who has watched any of Bush's largely ceremonial State of the Union Addresses ("Here's what I'm going to do and quite frankly I don't give a rat's ass what you think about it") has a pretty good idea how meaningful these reports will be. The Treasury Secretary will do absolutely whatever he wants, and there's nothing we can do to stop him.

For this bailout to take place, three things have to happen: first, Congress must reserve the right to terminate the bailout program at any time, and the program must be subject to legal challenge in the courts; second, there has to be a one-year moratorium on all home foreclosures, with banks waiving all principal and interest on troubled mortgages they would have received during that time; third, major regulatory measures must be put in place to ensure that the banks don't simply repeat the same reckless lending practices that got them into the mess they - and all of us - are in right now.

$700 billion is an enormous amount to pay for a short-term fix if the underlying causes of the mortgage fiasco aren't addressed and corrected.

Update: An excellent proposal being floated by Congressional Democrats: limit the executive compensation paid by financial companies who take bailout money. After all, if these companies are really so stricken that they have no alternative but to turn to the government for help, then taxpayer money should not be used to pay for exorbitant compensation of executives whose boneheaded decisions got us into this mess in the first place.

Strong comment from House Speaker Nancy Pelosi: "We will simply not hand over a $700 billion blank check to Wall Street and hope for a better outcome...Democrats believe a responsible solution should include independent oversight, protections for homeowners and constraints on excessive compensation."