Proceed, but with caution

The AJC solicited two views on the bailout proposal: one from a House Democrat, the other from a House Republican. Here’s what they had to say.

U.S. Rep. David Scott (D-Ga.)

Our homes have lost value, our families and neighbors are losing their jobs and their homes, our retirement accounts are busted and our banks are failing. But we must not panic or rush to action. We must be calm, thoughtful and thorough. We must get our response right because the stakes are too high.

The $700 billion plan submitted by Treasury Secretary Paulson was rushed, expensive, risky and lacking in oversight. It gave the secretary a blank check with no taxpayer protections and no help for struggling homeowners. I found this proposal totally unacceptable.

Any action that Congress considers must have:

1.) Oversight by Congress and thorough judicial review so that any action taken by Paulson is fully transparent and protects the taxpayers.

2.) Homeowners facing foreclosure must receive assistance. We are averaging more than 6,000 home foreclosures every day, and we would be remiss in Congress if we did not address this issue. Homeowners facing foreclosure should have forbearance options mandated in the plan such as rate reductions, write downs and loan modifications. And, bankruptcy court judges should have the authority to limit foreclosures and alter loan terms.

3.) No company participating in this package should be allowed to pay its executives more than the salary of the president of the United States.

4.) We must protect the taxpayers’ investment by ensuring we have established sound contracting procedures in selecting asset managers. The Wall Street firms that have led us down this path must not make billions in fees managing assets purchased under this program.

(5) Bailout funds should be provided in installments. Rather than handing over $700 billion outright to the treasury secretary, we should start with $250 billion, then add later installments if necessary.

(6) The plan must be bipartisan. This is not a Democratic or Republican problem. It is an American problem.

U.S. Rep. Spencer Bachus (R-Ala.)

In the past week and the past few months, we have seen unprecedented government interventions in our free-market economy. The most recent example has been the Treasury Department’s proposal to buy bad debt from financial institutions.

Our financial markets are ultimately hurt by the uncertainty over the government stepping in and picking winners and losers.

We need to find a way to put an end to this practice and adopt an approach that restores market discipline and discourages moral hazard.

Our financial markets have been able to ride out several significant events in recent years including: the bursting of the tech bubble, the corporate accounting scandals and the 9/11 attacks. After each event, we’ve emerged stronger than before; we must do so again.

The markets are now dealing with the consequences of years of excessive leveraging, the over-extension of credit, the failure of regulators to limit these risky practices, and the serious shortcomings of rating agencies in accurately assessing risk. Our financial gatekeepers have been operating in an outdated financial regulatory structure that no longer meets the needs of our 21st century financial markets.

Going forward we need to engage in a thorough discussion and examination of how we got here and how best to prevent this from happening again.

The modernization of our regulatory system has to be a priority. We need to ensure that our regulators maintain a framework in which individual firms can fail while the system continues to function. We need to ensure that our firms strike the right balance between risk and leverage. Capital and credit must flow to where they are most needed, but our financial institutions should not be taking outsize risk that will require repeated government interventions to save the system from recurring crises.

You may contact External Editor Tom Sabulis, who works with writers from outside the newspaper, at tsabulis@ajc.com.