President George W Bush’s adoption of the successful Iraq “surge” strategy to solve the financial crisis was always going to be a high-risk option.
Populist tendencies in America are at their peak during the pre-election period and if the legislators are to be believed their phone and email systems were crashing as voters railed against the $US700 billion bailout plan.
Even the subsequent trillion-dollar slump on Wall Street didn’t seem to bring public opinion around, such was the appeal that “fat cat” Wall Street financiers deserved nothing from the taxpayer.
The fact that the cause of the crisis goes well beyond the greed explanation, and that governments throughout history have used bailouts in previous financial panics, is conveniently forgotten.
It can be reasonably expected a legislative solution will be found – it needs only 12 Congressional members to change their minds – and public opinion may heed President Bush’s message that if action is not taken immediately, the "economic damage will be painful and lasting.”
In the meantime, the government agencies dealing with the issue will no doubt continue on a case-by-case basis, doling out money where failures may threaten the overall financial sector.
But Treasury Secretary Henry Paulson, who with Federal Reserve chairman Ben Bernanke is largely responsible for the plan, admits he lacks the powers to do the job.
Business Week reports Mr Paulson as saying the agency's toolkit is "substantial but insufficient." He says the Treasury will do what it can but "we need to put something back together that works," adding that ordinary Americans and small businesses were suffering from the financial system's stresses.
"Families, too, feel the credit crunch as it becomes more difficult to get car loans or a student loan," he says.
The ad hoc approach is also being followed in ensuring liquidity in the money markets, which have largely ground to halt. This is where the crisis affects the entire world economy and the European banking system in particular, where central banks and governments are dealing a series of bank collapses.
The New York Times calls these actions “printing money” in a report that describes how the Fed has already poneyed up more than the $US700 billion bailout plan in the past week for an emergency-lending programme for banks, swap lines with foreign central banks to help money markets from Europe to Asia, and the cost of propping up AIG and other institutions.
The Times says there is “more money where that came from,” citing sources that say the Fed could add debt of $US1-2 trillion.
The paper says the failed bailout also reflects "acute new anxiety at the Fed and central banks around the world that the crisis of confidence in American financial markets had metastasized to money markets everywhere.”
As for the next moves, the Wall Street Journal suggests “Administration officials are exploring several options for new approaches, but it appears likely that the new legislation will retain the major features of the bill…”
Some say the Senate will step in: Senate Banking Committee chairman Christopher Dodd, a Democrat, says, "I'm told a number of people who voted 'no' yesterday are having serious second thoughts about it."
Republicans in the Senate are more supportive of Mr. Paulson and the bailout plan and some Democrats think public antipathy will lessen if financial turmoil continues.
New York Times analyst Jackie Calmes says the bailout affair is a failure of leadership that highlights the “difficulties of dealing with fast-moving emergencies through the slow-moving and inherently political legislative process.”
With less than five weeks before election day, you can say amen to that.
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