When the House balked at the Bush administration’s $700-billion plan to aid Wall Street, stocks plummeted and the credit crisis intensified. Key lending rates skyrocketed, threatening to drive even more adjustable-rate mortgages into default. General Electric Co., its financial business withering, announced plans for a $12-billion cash infusion -- plus at least $3 billion from Warren Buffet. California Treasurer Bill Lockyer even warned that the frozen credit markets threatened the state’s ability to pay its bills, as well as jeopardizing new bond issues for highway, school, housing and water projects.
So how did proponents of the bailout respond? By larding it with tax breaks, handouts and pet projects. The 109-page House bill ballooned to 451 pages in the Senate as sponsors pumped it full of tax cuts for clean-energy projects, disaster-stricken areas in the South and Midwest, investments in research and development, and individuals facing the alternative minimum tax. They also tacked on a bill to require certain employer-provided healthcare plans to bring mental health coverage into line with benefits provided for other ailments.
Some of the provisions are certainly welcome, such as the lower tax rate for Hollywood studios that shoot films in the United States. Others, such as the elimination of excise taxes on wooden arrows for children, just seem frivolous. The message, though, was that supporters of the financial industry bailout had given up trying to convince voters that it was in their interests too, and not just Wall Street’s. Instead, they coated the bitter bailout pill with a bunch of end-of-session sweeteners to make it easier to swallow.
The Senate-passed measure, which the House is expected to vote on this week, kept the core of the administration’s plan largely intact. The Treasury Department would still seek to buy distressed assets, such as mortgage-backed securities, from financial institutions to help clarify their worth and the health of the banks that hold them. If it’s executed properly, the bailout should provide that clarity without requiring the government to overpay for troubled assets. And that’s what lawmakers should be voting for, with or without handouts.
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