Time to act?

In this comment Martin Wolf conveys his opinion on the failed bailout. He says he understands why the congress turned it down, but also that the decision was a mistake:

It [Congress’ failure to ratify the bailout plan] is understandable because the use of taxpayer money to buy so-called “toxic” mortgage-backed securities from the greedy fools who created the crisis is hard to tolerate. It is also understandable – even creditable – that those Republicans hostile to “socialism” do not want to bail out the undeserving rich, at least before an election. It is understandable, too, because, for reasons I put forward last week, the plan is not convincing. It is designed to deal with a problem of illiquidity in what seems certain to be a growing crisis of insolvency, particularly as house prices fall and the economy continues to weaken.

Yet the rejection is grossly mistaken because the resulting ruin will hurt the weak and destroy the legitimacy of the market economy. The plan is indeed flawed. But failure to ratify it is unlikely to convince anybody that something better will be forthcoming. It will convince them [who?], instead, that the US is choosing to be impotent. At a time of such fragility, when the insurance offered by government is most indispensable, this is the worst possible message. It is a pity Mr Paulson did not choose another plan. It is a pity, too, that a former titan of high finance was charged with bailing out Wall Street. Yet it was still a mistake to reject the plan. It was necessary, instead, to build upon it.

I am not sure I agree that any medicine is better than no medicine. Particularly not when the doctor may have better stuff in his laboratory. I do certainly not understand his claim later in the comment that first it is necessary to resolve the crisis, and think about the long term consequences of the settlements later. Anyway, Wolf thinks it is time to act:

Government must start to show it is in control of events. In the twilight of a failed US administration, that may seem far too much to ask. Winston Churchill, Roosevelt’s partner, said: “The United States invariably does the right thing, after having exhausted every other alternative.” The alternatives are now exhausted. It is time for politicians to do the right thing.

I found the caricature that accompanied the article funny and to the point. It remains to see whether it is water or gasoline he has in the pipes.


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