WASHINGTON (MarketWatch) — Fairly or not, some critics say they can’t help but see similarities between the Bush administration’s hurried approach to the financial market crisis and its headlong plunge into the Iraq war.
“You can draw some valid parallels between the prosecution of the war under the Bush regime and the way the financial sector has operated in recent years,” said Tom Schlesinger, head of the nonprofit research group Financial Markets Center in Howardsville, Va.
“It fails the most basic test of democratic accountability,” Schlesinger said.
On Tuesday, Washington kicks off the first hearings in which top officials will defend their prescription before lawmakers, who also are compelled by circumstances to take speedy action.
Some policy observers point to a “trust us” mentality in the administration’s call to obtain sweeping powers that are scant on checks and balances on the executive branch. In addition, the White House is faulted with a failure to raise alarm before the situation spiraled out of control, forcing the mobilization of more troops and untold financial resources.
Outlining the administration’s remedy, Treasury Secretary Henry Paulson came up with a three-page plan to spend $700 billion on toxic mortgage debt that was very spare on key details.
It boils down to “give me the money and trust me,” Schlesinger said.
James Angel, a professor of finance at Georgetown University, said the White House appears to be “flying by the seat of their pants.”Sidelined
Congress got little advance warning of the proposed bailout, as the Treasury Department waited until five days before lawmakers were set to leave town for the presidential and Congressional election campaigns. As a result, any discussion of alternatives has been sidelined.
In the eight years of the Bush administration, investment firms have, like the security contractor Blackwater, been subjected to slim or no oversight, Schlesinger said. Now comes another big contracting job.
Struggling to assess the cost of a financial rescue, analysts have honed in on the price the Treasury pays for seizing toxic assets on the books of financial institutions. The department has pledged to hire financial market experts to conduct the plan.
Treasury is talking about a plan that essentially would allow sellers to name their price for the securities. Under the plan, a so-called reverse auction, institutions that choose the lowest price — say 50 cents on the dollar — would win instead of a firm that wants 60 cents.Price too low
Economists said there was a central problem to the Paulson plan. Most of the toxic waste in question does have some price, but it has been too low for the financial institution holding them to accept. So the government buyout would only work if taxpayers overpay for the assets.
“It is no wonder that the Bush administration is pressing to get the plan passed quickly before any real oversight can be brought to bear, because even the simplest due diligence suggests that it needs some work if the taxpayer’s interests are to be even minimally protected and some real oversight brought to bear on the whole process,” wrote Josh Shapiro, chief U.S. economist at MFR Inc. in a note to clients.
And that may be precisely what is most worrisome to economists who fear, as Angel put it, “government bungling that will cost taxpayers, big-time.”
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