Simple Solution to Credit Crunch

Most Americans, at one time or another, have faced some form of credit crunch. The response has been to seek funds. Some have taken on more work, others have opted for loans or handouts.

Today, the U.S. Government comes hat in hand in the face of one of the nation's most dire credit crunches. This credit crunch, however, is not the result of government largess, but of Wall Street fraud and gross miscalculation.

President Bush's response to the crisis, while finally candid as to the scope of the problem, is woefully short on ensuring responsibility on the part of those largely responsible for the current economic mess. Initially, Treasury Secretary Henry Paulson, the man who floated into Washington beneath the winds of a $40 million per year Wall Street parachute, requested $700 billion in taxpayer money to bail out Wall Street friends and foes alike, with only the slightest of oversight of the disbursal and use of the funds by anyone other than the recipients of those funds. Even the President blushed.

Concerned with decreasing poll numbers, Senator John McCain road to the rescue, chiding Mr. Paulson for his initiative and calling for "change." When pressed during a meeting with President Bush, top congressional leaders, and Senator Barack Obama as to what ought to be included in the unprecedented bailout, Mr. McCain had no answers. All Mr. McCain knew was that he should not attend a debate in Mississippi on Friday without an agreement in place, an agreement that he hoped to delay long enough to postpone what is certain to be an unflattering debate for the Arizona Senator.

Ditto the Republicans in the House of Representatives. Clearly intent on attempting to portray McCain as thoughtful and themselves as opposed to a mess largely of their anti-regulatory making, Republicans in the House threw a hissy fit in a White House meeting on the bailout plan that left fellow Republicans embarrassed and Democrat Barney Frank ironically finding himself defending a cowering President Bush from members of his own party.

The White House debacle left Paulson pleading with Mr. Frank not to reveal the events of the meeting in public, the President looking anything but Presidential, and Mr. Obama looking like the most astute of the two presidential candidates offered by the two-party system, if only by default.

Sophomoric and churlish behavior aside, those debating the terms of what is certain to be a financial bailout of Wall Street appear close to what should be an obvious resolution to this fiasco. But they appear intent, as well, on leaving out key components and caveats to a successful plan.

Rather than requiring that there be no golden parachutes for officers of firms benefiting from this government bailout, the Paulson plan should require that

• those receiving bailout funds repay the funds within two years
• those receiving bailout funds repay the funds with interest no less than that paid by AIG for its own bailout arrangement with the federal government
  
• those receiving bailout funds pay a penalty for late payments
• those receiving bailout funds have their interest rates increase upon the making of late payments
• re-payments on the bailout loans be deposited in a secured, interest-bearing account and credited to the American taxpayers
• the government receive a one-third stock interest in all companies receiving bailout funds
  

The bailout plan would thus offer both credit for the market, thereby addressing the liquidity issues purportedly at stake in this crisis, and an incentive for those receiving funds to remedy their ills in short order. It also would provide two opportunities for taxpayers to recoup funds loaned, with stock interest in the debtor firms mitigating the harm caused by those firms failing to repay their loans.

What this bailout would not do is limit officers' pay. By steering clear of this provision, the bailout plan would ensure that qualified and motivated individuals engineered the recoveries of the firms that we purportedly need to have recovered.

It's a plan that could work and should work, but, of course, it is also a plan subject to the whims of political winds. And that, despite the unlikeliest of marriages between the Democratic left and the Bush Administration, might mean that it is far more than that for which we should hope.