All the papers lead with news that the federal government is working on a comprehensive plan to try to prevent the financial crisis from spreading. The New York Timessays it "could become the biggest bailout in United States history," while the Los Angeles Timesand Wall Street Journal say it could be the most extensive government intervention into the financial markets since the Great Depression. Congressional leaders met with Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke last night and vowed to work through the weekend so they could vote on a measure by the end of next week. The Washington Postgets word that Paulson and Bernanke presented a "chilling" picture of the U.S. financial system as they warned lawmakers that the situation could get much worse if they don't pass legislation by next week.
Investors were so desperate for some good news that "the mere rumor of such major government intervention fueled a massive stock rally," reports USA Today. The Dow Jones industrial average shot up from what was a 200-point loss to close with a gain of 410 points, or 3.9 percent, which was its biggest percentage gain in almost six years. The rally continued around the world today as stock markets in Europe and Asia soared as soon as they opened. "There is a general acceptance that the government's plan will finally cage the wild beast," an analyst tells USAT.
Details of the proposal haven't been released but everyone says the crux of the plan would involve using hundreds of billions of dollars of government money to buy distressed assets from financial companies so banks could carry on with their normal borrowing and lending. The move would leave "banks with more money and fewer problems," summarizes the Post. The NYT notes that the plan could add up to "the most direct commitment of taxpayer funds so far in the financial crisis." The LAT points out that at the meeting with lawmakers, Paulson and Bernanke suggested that once the markets calm down the government would be able to sell the assets to recoup taxpayer money and perhaps even make a little profit on the side.
Almost all the papers compare this rescue model to the formation of the Resolution Trust Corp., which was created in the 1980s to deal with the fallout from the savings-and-loan crisis. The WSJ, however, says that the program is likely to look more like the Reconstruction Finance Corp., which was created in 1932 to pump liquidity into the markets. The NYT also notes that a key difference between the Resolution Trust Corp. and the plan likely to be unveiled today is that the government would take over just distressed assets and not entire institutions. It's not clear how all this would be structured, but the WSJ hears word that Paulson wants it to be either part of the Treasury Department or an entirely separate division of the government.
The move isn't exactly surprising, since top financial experts have been pushing similar plans over the last few days. Many have been critical of the seemingly ad-hoc nature of the recent rescue effort, where it seemed the federal government was making haphazard, split-second decisions and jumping from one crisis to the next without coming up with a comprehensive plan to deal with the issues at hand. Still, says the NYT, the late meeting with congressional leaders "took most of Washington by surprise, especially since Congress had been trying to finish up its business and head home to campaign for re-election."
It's not exactly clear how the meeting with lawmakers came together, and the series of events described in the papers make it all seem a bit strange. The Post says House Speaker Nancy Pelosi called Paulson's office in the midafternoon to discuss the crisis, and it was during this call that the Treasury Secretary "asked to meet" with key lawmakers. So, if Pelosi hadn't called, the meeting wouldn't have been arranged? Of course, it's likely that Paulson was planning to make the call anyway and Pelosi just beat him to the punch, but the fact that the meeting came together so quickly and without prior discussions illustrates the fast-moving nature of the crisis.
Regardless, it would be a mistake to think that the meeting with administration officials was all love and that passing such a huge bailout in a week will be an easy task. It's important to remember that lawmakers had already been feeling snubbed throughout the week as they were relegated to the spectator seats during what many are now calling the worst crisis since the Great Depression. The NYT says the "atmosphere was tense" last night, and the Post says one lawmaker scoffed at the idea that Paulson was asking them for "a blank check." Republicans are particularly skeptical of devoting so much taxpayer money to the effort, particularly since Paulson and Bernanke were honest and said they couldn't affirm whether this latest plan would actually succeed in stabilizing the market.
Bernanke and Paulson may have been hesitant to show too much optimism simply because no one knows whether the plan will work. In a front-page analysis, the LAT notes that while everyone agrees a comprehensive solution is needed, just because a similar plan worked during the savings-and-loan crisis doesn't mean it will work now. The distressed assets we're talking about now are owned by financial institutions that aren't under federal regulation, not to mention that they're also much more complicated and may still decline in value. "Creating a bureaucracy that takes paper that has no value and tries to sell it is just going to look like more smoke and mirrors," one expert said. Plus, if the government is going to buy these assets at a discount it would mean the financial institutions would have to record it as a loss, which is what they've been trying to avoid in the first place. But if they don't, then the federal government would certainly be accused of wasting taxpayer money.
In other crisis-related news, the WP and WSJ note that the Fed is considering creating some sort of federal insurance for investors in money-market mutual funds. In the last few days, investors have been rushing to get their money out of these funds that were once considered one of the safest investments. Also, the NYT devotes a separate story to, and everyone points out, that the Securities and Exchange Commission is considering following in the steps of its British counterpart to ban short selling.
John McCain joined the outcry against speculators and short-sellers, who bet on the decline of a company's stock price, and he took aim at the SEC's chairman, Christopher Cox, for allowing the financial markets to turn "into a casino." Saying that Cox had "betrayed the public's trust," McCain emphasized that "if I were president today, I would fire him." The White House said it stands by the chairman, and Cox himself released a statement saying that a time of crisis is "precisely the wrong moment for a change in leadership."
Meanwhile, both Obama and McCain are using the financial crisis as an opportunity to "audition for who could best handle a national economic emergency," notes the NYT. Each candidate is trying to come up with quick responses to a changing situation as if they were actually sitting in the Oval Office, even though neither of them is at the center of the action yet, they're "expected to act as if they have the best information available." But, of course, they're also using the opportunity to dig into each other. McCain, continuing with his image as an "angry populist," as the LAT puts it, accused Obama of "cheerleading" the crisis because it's good for him politically and said Obama's running mate thinks raising taxes is "patriotic." Obama mocked McCain's call for firing Cox, saying it would not erase his "lifelong record" of supporting the "people who helped bring on this disaster."
In case you haven't heard enough about the Gravina Island Bridge (aka the "Bridge to Nowhere") and Gov. Sarah Palin's role in the whole debacle, the LAT fronts a dispatch from Gravina Island that clearly explains what happened and why many in the area aren't happy with the vice-presidential nominee. While the construction of the bridge was canceled, work on the $26-million road that was designed to connect to the bridge began anyway. Residents say they don't understand why Palin, a self-avowed fiscal conservative who campaigned in support of the bridge, didn't redirect the money for the Road to Nowhere elsewhere. "Here's my question," said the mayor of the town where the bridge was supposed to end. "If Sarah Palin is not being truthful on an issue like the Gravina bridge project, what else is she not being truthful about?" He's apparently considering posting a sign on the road: "Built Under Gov. Sarah Palin, Paid for With Federal Earmarks."
Republican Sen. Chuck Hagel, who has never been shy about breaking with his party, became the most prominent Republican lawmaker to question whether Palin is ready to be president due to her lack of foreign-policy experience. "I think they ought to be just honest about it and stop the nonsense about, 'I look out my window and I see Russia and so therefore I know something about Russia,' " Hagel said. "That kind of thing is insulting to the American people."