The Bush administration and Congress this week continue to negotiate details of the proposed
$700 billion bailout
of bad debt from Wall Street banks. The bailout would be the largest ever of its kind and hamper any future administration with billions in debt.
The deficit could soar over $1 trillion, while the national debt could easily surpass the $10 trillion mark. Also, a bailout will likely take years to unwind.
Given the large implications of such a bailout on the future administration, why has neither presidential nominee tried harder to influence the debate in Congress?
Neither candidate had called for a bailout with the scope proposed by Treasury Secretary Henry Paulson's plan. Before Paulson's weekend proposal, Sen. Barack Obama (D., Ill.) had been trying to drum up support for a second stimulus package, while Sen. John McCain (R., Ariz.) had been busy assuring voters he wouldn't waste taxpayer dollars on a bailout.
Once a bailout was announced, both of the candidates tepidly endorsed the plan on the campaign trail. Worse, the candidates sparred over who had greater lobbyist ties to the troubled financial industry rather than addressing the ramifications of the biggest bailout plan in U.S. history. Do the candidates really understand what it means?
The bailout comes with risks. The Treasury plan raises both the deficit and the national debt while weakening prospects for a recovery of the dollar. A weak dollar helps exports. However, a weak dollar has also meant higher petroleum prices, which negates the positive effect of exports and puts pressure on the U.S. consumer. The consumer accounts for 70% of economic activity.
Furthermore, the bailout only aids Wall Street banks in cleaning up bad debt. While this might help credit spreads and lead to some additional lending, it won't help homeowners who face foreclosure or the average consumer concerned over negative equity in their home or their poor job prospects. Where is the help for Main Street?
Speaking in Green Bay, Wis., Monday, Obama said: "This week, we must work quickly, in a bipartisan fashion, to resolve this crisis and avert an even broader economic catastrophe." It is of some interest that he failed to question the need for the bailout or address the terms of the bailout.
In fact, Obama offered no criticisms for the package. He did turn his sights on the Washington atmosphere of lobbyists that allowed for a lack of oversight. He suggested his opponent's endorsement of oversight rings hollow:
"When it comes to regulatory reform, Senator McCain has fought time and time again against the common-sense rules of the road that could've prevented this crisis. His economic plan was written by Phil Gramm, the architect in the U.S. Senate of the deregulatory steps that helped cause this mess. Even knowing what we know now, Senator McCain said in an interview just last night that deregulation actually helped grow our economy."
Certainly, McCain's initial reaction to the bailout was one of grudging acceptance. Then he went on the attack, hammering Obama for alleged
McCain does deserve some credit for questioning the contents of the bailout. "We won't solve a problem caused by poor oversight with a plan that has no oversight," he said on Monday. Treasury Secretary Paulson's proposal asks for carte blanche in dealing with the bailout, including no interference from any other agency or court. Worse, we still have no idea what type of securities would be allowable and whether the taxpayer would benefit from sales of securities. That's a large leap of faith.
McCain also attacked Obama for not taking a strong stance on the bailouts. Tuesday he released an ad that charges Obama has been "mum" on the bailout in an effort to suggest Obama doesn't support oversight. For the record, Obama has been calling for better regulation of Wall Street since March.
Considering the awesome scope of the bailout and the fact that their administration would be responsible for a bailout, the candidates need to demonstrate a better understanding of what they think and what they plan to do. Presidents should be leaders, not followers.