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President Bush Issues Plea for Bailout

POSTED: September 24, 2008, 12:00 am

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With his plan for a $700 billion bailout of troubled financial institutions taking hits from both sides of the aisle in Congress, President Bush took to the airwaves last night in a national address, using his bully pulpit to ask Americans to support his proposal. The President’s speech came after two intense days of negotiating between the White House and Congressional leaders, and positioning by both of the major party presidential candidates.

It was another remarkable moment in what is developing as a historic meltdown of the nation’s economy. Faced with the federal takeover of mortgage giants Fannie Mae and Freddie Mac, the collapse of investment bank Lehman Brothers, the federal bailout of insurer American International Group, the sale of Merrill Lynch to Bank of America, and the conversion of Goldman Sachs and Morgan Stanley into holding companies; Mr. Bush is facing a sort of high-noon moment on the American economy. Not since the Great Depression, has a federal intervention on the scale as proposed by the President has been necessary to stave off a fiscal meltdown.

In a somber tone Mr. Bush said, “I'm a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly. There's been a widespread loss of confidence. And major sectors of America's financial system are at risk of shutting down.”

Clearly reacting to criticism on the Hill that the White House is moving too quickly on the bailout plan, the President sought to convey a sense of urgency. Treasury Secretary Henry Paulson has been pushing for an agreement on the plan by the end of the week but has been stymied by criticism from Republican and Democratic members of Congress, many of them still angry with the manner in which the White House moved on the Lehman Brothers crisis last weekend without consulting Congress. Also, both Republican presidential candidate Senator John McCain and his Democratic Party rival, Senator Barack Obama, have raised questions over the provisions of Mr. Bush’s plan. Still the President and Secretary Paulson have insisted the proposal on the table is, with some modification, necessary to prevent the economy from slipping even further.

Mr. Bush attempted to paint a “Doomsday” scenario in the event the bailout plan is not approved immediately by Congress. The President suggested, “More banks could fail, including some in your community. The stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet. Foreclosures would rise dramatically. And if you own a business or a farm, you would find it harder and more expensive to get credit. More businesses would close their doors, and millions of Americans could lose their jobs. Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college. And ultimately, our country could experience a long and painful recession.”

The President’s choice of words was strategic as for months now the White House has been arguing that the country was not in a recession and that a turnaround, though not forthcoming immediately, was on the horizon. After months of bad news, with home prices falling and foreclosures escalating, and major companies reporting dismal quarterly performances, it became clear that the economy, if not in recession by the accepted definition of that term, was teetering at the edge or in a new state of play that heretofore had not been experienced in this country. The reaction of the market this to the Bush proposal more than anything else may have motivated the White House to schedule airtime for the President to speak to the nation Tuesday night.

While Mr. Bush sought to suggest the current crisis had roots long before his administration, saying at one point in his speech, “most economists agree that the problems we are witnessing today developed over a long period of time,” there is a growing frustration among many in his own party that the President insufficiently monitored the activities of financial institutions that had leveraged so much of their capital on the high risk mortgage instruments that have precipitated the collapse of the housing market. As home values plunged, many Americans began to see their financial security disappear as their homes were their primary investment. Combined with new homeowners who took out alternate rate mortgages (ARM) and saw their monthly payments balloon, and now face foreclosure, and a deepening credit debt crisis, the average American is facing financial ruin.

To further demonstrate a sense of crisis, President Bush announced he was summoning presidential candidates Senator Barack Obama and Senator John McCain, along with Congressional leaders, to the White House for a special briefing on the economy on Thursday. The presidential candidates issued a joint statement on the economy in an effort to downplay partisan differences regarding the current proposal on the table, stating in part, “Now is a time to come together – Democrats and Republicans – in a spirit of cooperation for the sake of the American people. The plan that has been submitted to Congress by the Bush Administration is flawed, but the effort to protect the American economy must not fail.”

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