Both sides decry the $700 billion cost, insisting that it will overwhelm the federal budget with a mountain of new debt, the same arguments that were used against the savings-and-loan bailout in the 1980s. But most, if not all, of the debt assets and equity stakes assumed by the Treasury will be sold eventually in the market, and the proceeds will be used to pay off that debt, probably in full. The next administration will be the beneficiary of that debt reduction.
America has been through similar situations like this before, and each time the economy emerged stronger.
The Panic of 1907 is the classic liquidity crisis. With a run on banks and a free-falling stock market, the financial emergency placed the economy on the precipice of collapse. There was no Federal Reserve to come to the rescue then, but investment banker J.P. Morgan and a group of financiers, acting like the Fed, provided the financing that saved key institutions from failing and effectively ended the crisis.
That's what Paulson would do if Congress approves the bipartisan plan now before it.
These are challenges that take political courage to overcome, when, as Abraham Lincoln once said at the lowest point in the Civil War, we sometimes have to "think anew and act anew."
Sadly, political courage was in short supply in the House on Monday. Too many frightened lawmakers were thinking of their own skin, keeping their jobs, and winning re-election, instead of thinking about their country and the well-being of our economy.
Braver souls knew that inaction was not an option. "If I didn't think we were on the brink of an economic disaster, it would be the easiest thing in the world for me to say no to this," House Minority Leader John Boehner of Ohio said. "But I think the risk in not acting is much larger than the risk in acting."
Exactly. Hiding behind Adam Smith and playing class warfare, while the economy is in danger of collapse and credit markets are hemorrhaging, will not get us out of this mess. It will only prolong this crisis and worsen it. And it will be the people on Main Street who will suffer the most from lost jobs, depleted credit and worthless retirement accounts -- not those at the top of the heap on Wall Street.
When J.P. Morgan rescued the U.S. economy in 1907, most Americans believed his actions were part of a dishonest scheme by Wall Street financiers to enrich themselves at the expense of the working class. That kind of cynicism and disbelief is poisoning our body politic today and led to the House's blind, head-in-the-sand inaction Monday that endangers us all.