The Way Out - revisited

The weekend results from the collective wisdom of Congress has been published and is available for review in its entirety at www.financialservices.house.gov  (106 pages, by the way - but six page summary is also published there).  As expected, the Congress has been able to take Secretary Paulson's three piece manifesto and expand it until it sounds like legislation (and no one can read or understand it).  The bill now includes insurance of assets but still includes direct purchase - which I oppose.

They speak of a Troubled Asset Relief Program (TARP).  But I am sorry, I still only see a Corporate Revolving Asset Program. (an unfortunate acronym)

I am still very uncomfortable with the program and want to consider other possible approaches and try for a more comprehensive solution.  But I am sensitive to the fact that Washington Mutual went down since we started talking about this and there should be concerns that foreign investors might begin to remove their money from our markets if we do not act quickly. 

But I have two goals - first to solve the current liquidity issues in the financial markets while helping the financial institutions to solve their solvency problems.  Second, I am trying to elect a Republican President and as many Republican Congressmen and Senators as possible.

Senator McCain, in my opinion, did the right thing last week by centering his attention on the financial crisis in Washington.  As usual, he did not go far enough, however.  When he returned to the debate on Friday night, he should have made a statement in the beginning moments that he had asked Senator Obama to delay the debate - but that Obama had refused.  So that he was reluctantly forced to participate, but would immediately return to Washington.  He then should have had a strong opinion about what is wrong with the program as it stood last Friday and what he hoped Congressional Republicans and Democrats would do to change the bill.  By taking a public position at the broadly watched debate, McCain could have broadened the discussion by Congressional negotiators this weekend.

I favor the approach - put forth by House Republicans -  of insuring the non-performing mortgages and the mortgage backed securities that are now a problem for the markets.  The government must stand behind the financial market system in this country, but without direct purchase and nationalization of 700 billion dollars of equities.  But In addition, a comprehensive energy program would go far to restore confidence in our economy in the eyes of the world and our own citizens and fits into the current discussion.  The public is enraged by this bailout of Wall Street and there is political horsepower in the public unrest if a leader will propose a solution that is acceptable to the voters - Republican and Democrat.

Speaker Newt Gingrich has railed against this bailout all week.  In a report by Teddy Davis of ABC News, Gingrich called upon McCain to support the public interest by taking on the "Obama-Bush Establishment" (source)

Gingrich goes further and describes four major points that should accompany any bailout program:

Gingrich's four-point plan includes: (1) suspending immediately mark to market provisions (the accounting practice of valuing a financial position in an investment at its current market price) in the hopes of stopping the downward spiral in asset values and eventually replacing it with a three year rolling average; (2) repealing immediately Sarbanes-Oxley, the 2002 accounting law Gingrich described as "an enormous drag on small business"; (3) setting the capital gains tax rate at zero "matching the Chinese and Singapore" (to encourage private capital to flood into the market picking up properties without the taxpayers being at risk); and (4) passing an "extraordinarily powerful" energy bill ("to return $500 billion a year to the American economy that are currently going overseas").  (source and full coverage)

Dick Morris and wife, Eileen McGann have written in today's New York Post (source) an excellent strategy for Senator McCain and the Republicans to follow.  Read the article in full <here>

Morris calls upon Senator MCcain to have the courage of his convictions and have him call for House Republicans to not agree to a plan that calls for the taxpayer-funded purchase of bad mortgages.  Although the effect is much the same, a plan that calls for insurance by the government of bad paper and loans to the struggling financial institutions is politically preferable - and much more acceptable to the public.  The addition of the energy provisions, tax cuts and bookkeeping changes would create a stronger bill, would strengthen the markets and would be politically advantageous.

The Democrats are looking for political cover here.  They are the majority party in both houses and can pass their bill and send it to the President.  But they want Republicans to sign on and they are backing the wrong plan.  McCain can lead the House Republicans to present a better solution and the Democrats must accept their bill or pass their own.  If they take the Republican version, they will give more credit to the Republicans than they want.  If they pass their own bill without Republican support, they will be out on a limb if the bill doesn't work - and it is already unpopular with the public. 

McCain and the Republicans have an opportunity to be on the right side of a popular issue and to do the right thing in the process.  But the time is now.  The House will take up the compromise bill this morning.