Editorial Today -- Right on Every Point

new_york_times:http://www.nytimes.com/2008/08/20/opinion/20wed1.html
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Published: August 19, 2008
A year into the financial crisis, the news is grim and there are signs of even worse troubles ahead. The mortgage bust continues and has begun to spread to loans for construction and commercial property, as well as credit cards and auto loans.
There may soon be more bank failures and a spate of corporate bankruptcies. That means that unemployment will almost certainly rise — employers have shed nearly half a million jobs this year — and those who keep their jobs will have to cope with fewer hours, measlier raises and evaporating bonuses.
In an election year, sound policy making is almost always trumped by political posturing, making the situation even bleaker. A case in point is the new foreclosure-prevention law. President Bush threatened for months to veto it, before signing it in July. The law’s main feature — allowing the government to guarantee hundreds of billions of dollars in new mortgages to troubled borrowers — won’t take effect until Oct. 1.
The law’s other important feature — a contingency plan for a government bailout of Fannie Mae and Freddie Mac, the nation’s biggest mortgage companies — was a last-minute, crisis-driven addition, the opposite of the ahead-of-the-curve action that is now needed.
The country cannot afford more delay and more posturing. Before the crisis gets any worse, Congress must take several steps.
Lawmakers need to start crafting the next stimulus bill — without repeating the mistakes of the last one. Composed mainly of tax rebates, as the White House wanted, the first stimulus was too broad to deliver a powerful punch. The next package has to focus on actions that are known to yield big economic benefits: bolstered food stamps, which rapidly boost consumption; and aid to states and cities so they can continue to provide essential services. Lawmakers should also invest in infrastructure projects, like repairing bridges and roads. If not, projects that are already under way may have to be canceled, creating more unemployment.
Congress also needs to ensure that a $4 billion grant to states and cities to buy up vacant properties is quickly and efficiently distributed. The Department of Housing and Urban Development is developing the formula for allocating the money, and early indications suggest it is on top of the process. But the White House is contemptuous of the grant, calling it a gift to speculators when it is actually a lifeline for ailing communities. That means Congress will have to be especially vigilant.
Congress also cannot wait to see if its anti-foreclosure measures work. It must begin to vet other ideas and be ready to move quickly if the crisis worsens. Most important, lawmakers should be ready to reform the bankruptcy law so that homeowners can have their mortgages modified under court protection. That is arguably the best way to prevent foreclosures, but it is also the policy most reviled by the mortgage industry. Lawmakers should let the industry know that if lenders are not willing to back the foreclosure prevention effort wholeheartedly — before the government can step in, the law requires that the balances be reduced — they will be seeing the homeowners in bankruptcy court.
The work doesn’t end there. The Bush administration and federal regulators need to develop a framework for resolving future financial failures before they occur. That is essential for rebuilding confidence in the system.
Millions of Americans are already suffering. And we fear millions more will be hurt before this crisis ends. They cannot wait until after the election for help.