Proceed Cautiously On The Bailout Plan

Congress is acting prudently by not quickly authorizing the administration's $700 billion bailout plan. Treasury Secretary Henry Paulson keeps warning of an economic Armageddon if Congress does not act immediately.

The warnings of doom without quick action are mindful of the administration's frightening rhetoric about weapons of mass destruction in the lead-up to the Iraq war. Yet in testimony to the Senate Banking Committee on Tuesday, neither Mr. Paulson nor Federal Reserve Chairman Ben Bernanke offered any hard evidence that the situation was all that dire.

Which is not to say that Congress should not, in some form, provide the relief for Wall Street that the administration seeks. But if Congress approves a massive relief bill, it should only do so after thoughtful deliberation, even if that means taking a week or two. Economists from prior administrations, both Republican and Democrat, have raised serious questions about the bailout.

The plan outlined by the administration would allow the Treasury to buy up troubled mortgage and other distressed credit assets from U.S. companies and foreign firms with domestic operations. Unburdened by bad debt, the investment firms could then begin lending again, reinvigorating the market, Mr. Paulson and Mr. Bernanke argue.

But the only way the scheme works is if the government willingly pays a premium price for securities now judged so worthless they have no buyers in the private marketplace. As the economy recovers, the assets might attract buyers and get resold back into the private sector, but that is far from certain.

Connecticut's own Sen. Christopher J. Dodd, chairman of the Banking Committee, suggests some reasonable provisions: an oversight board to administer the program; transparent polices and procedures; government equity in the companies seeking relief; and limits on executive compensation for executives.