Far more than a financial rescue for America's collapsed financial structure failed Monday when the U.S. House voted down the $700 billion bailout. The spectacle was a failure of political leadership that crippled American and world confidence in the ability of the White House and Congress to manage a major crisis with calm and imagination.
Americans expected Washington to act quickly to prevent Wall Street's crisis from ricocheting into the daily personal well-being of Main Street. No such serious results were forthcoming.
Instead, failure and pettiness reigned. The Bush administration waited until the economy cratered before sounding the alarm. A grandstanding John McCain canceled his campaign (not really) and a scheduled debate (not really) to ride into Washington in a showy attempt to save the day (he didn't). Democratic House Speaker Nancy Pelosi delivered an impetuous, pointless rant about Republicans that merely frayed nerves and created division.
When Congress finally produces a bill for President Bush to sign, it must take lessons just learned from this debacle and immediately set about restoring public trust in the ability of Congress and the White House to regulate and police financial policies that affect the well-being of our nation as well as our families.
The era of funny financial paper should be ended—tranches, derivatives, default swaps, ring-fenced special purpose vehicles and other gimmicks that allowed Wall Street to reap a cascade of fortunes by selling paper contracts over and over with hype and hope rather than realistic value.
Congress has a duty, moreover, to investigate and demand prosecutions of rating firms, companies and individuals that engaged in some of this speculation and profited with false assurances that investments were sound. Boosting government protection of bank accounts from $100,000 to $250,000 each is a must, too.
Corporate executives who harvested enormous bonuses and now appeal for a public bailout should be denied golden parachutes—or any parachute.
At the heart of the Wall Street wreck is the misplaced belief that an unregulated financial world can succeed if left alone. Naïve, yes, but also unrealistic.
In a global economy, currency and stock values can rise and fall drastically within minutes on the strength of something as elementary as a national leader's speech. Consequently, central banks must leap into these seismic events to protect domestic as well as global financial stability.
Before Congress again mutters the word "bailout," it should pass tough new regulations on Wall Street, then set up an easily understandable economic rescue that will protect taxpayers from becoming the fools left holding the bag.