Mortgaging the Future
The Bush administration announced Friday that it would seek to stabilize the financial sector by buying up the distressed mortgages that were at the heart of last week's market calamities. All the papers lead with their analysis of the plan, although details are still scant and questions abound. Treasury Secretary Henry Paulson had yet to formally present a formal proposal by the time the papers were put to bed, but he had briefed lawmakers on his plan via conference call.
According to the New York Times, the plan's goal is to restore stability by soaking up assets that aren't easily turned into cash, increasing the availability of capital. The Washington Post says the government will also look to insure money-market mutual funds, which currently comprise $3.5 trillion in investments, in order to maintain a ready supply of short-term funding for corporations. This aspect of the plan displeases bankers, who fear that insuring these funds will destabilize banks by luring away customers from savings accounts. The Los Angeles Times, however, reports that any money market insurance plan would most likely last for one year only.
The biggest question is what this plan, potentially the biggest government intervention in the market since the Great Depression, will cost. The WP says $500 billion. The NYT says possibly as much as $1 trillion. The LAT thinks the price tag could reach $2 trillion. That money wouldn't all be spent at once. It's unclear how many mortgages would be bought up and how quickly. The Wall Street Journal says the government would most likely use a reverse auction model, buying up cheaper properties first and so giving banks an incentive to offer them a deal. The paper worries, however, that if the government negotiates too aggressively it will only hurt banks further.
Stocks surged in anticipation of the plan on Friday, with the Dow Jones industrial average posting its "biggest back-to-back point gains in more than eight years," according to the LAT. Fridays' bump all but erased the losses sustained earlier in the week. Never the less, the NYT reports that investors are unhappy about new restrictions imposed in the wake of last week's chaos.
To different degrees, the papers all suggest that the biggest hurdle the plan will face is getting past Congress. Both Secretary Paulson and Federal Reserve Chairman Ben S. Bernanke have been leaning toward large-scale intervention for some time, according to the WP, but they didn't want to propose a plan only to have Congress reject it, spurring further panic in the market. But by Wednesday, says the WSJ, the two men felt they had no choice. Now they must hope that the urgency of last week's events will give their proposal the momentum it needs to quickly clear Congress.
Still, as the NYT notes, the two parties are in no mood to cooperate six weeks before an election. Both sides also have plenty of misgivings about the proposal. Democrats worry it will only help wealthy financiers, and Republicans are concerned by the plan's price tag. Timing is also an issue: Lawmakers were planning on adjourning next Friday and staying in recess until after the November elections. Before they go, they'll face several other high-profile bills, including a resolution to continue funding the government past Oct. 1.
The WP uses the mortgage buyout as a news peg for its offlead analysis of President Bush's second term. The paper argues that the plan, which some Republicans say violates the tenets of small-government conservatism, is just the latest in a string of signs that Bush has become less ideologically rigid in his second term.
The LAT decides to use the current financial mess as a test of the leadership styles of Sens. Barack Obama and John McCain. The paper concludes that their responses closely mirror their campaign styles, with McCain looking to attack the problem head on and Obama deferring in hopes of building consensus.
The NYT gives Sen. Joe Biden a glowing review for his performance on the campaign trail last week but says his efforts are generating little notice. The paper says the Obama camp is now trying to reintroduce its VP pick to the nation after Sarah Palin grabbed the spotlight during the week of the Republican National Convention.
Meanwhile, inside the WP declares that Palin and McCain have created a "new way of campaigning" by touring the country together, instead of splitting up to cover more ground as most running mates do. Unfortunately, the paper doesn't do much to explain why the McCain camp has chosen to campaign this way. The paper says that women like Palin and that she draws a crowd, but she would do the same if she were touring alone. Is touring together more effective? If so, why do Obama and Biden travel separately? What is it about the McCain-Palin ticket that makes this arrangement preferable? The piece does say, "McCain likes having Palin along," but TP would hope there's more to the story than that.
The WP fronts coverage of a high-class fundraiser for second-hand retailer Goodwill. The story quickly turns into a look at how sales at thrifts shops have surged across the nation this year. The articles suggest that in hard times, even the well-to-do enjoy a bargain, and a growing recognition that second hand stores sometimes contain hidden treasures has only fueled the chain's popularity.
Jesse Stanchak is a writer living in Washington, D.C.