Paulson's $700 Billion Plan is Bitter, but Necessary Medicine

Secretary of Treasury Henry Paulson defined his objectives simply as comprehensive, significant, and protecting of taxpayers. Few would argue with the significance of the recovery plan, but Congress is debating the comprehensiveness and protection to taxpayers.

Congress Asks Questions

Although the Bush Administration and Secretary Paulson lobby for expediency many bi-partisan voices are trying to ask pertinent questions. These same voices caution blind trust that has led to a string of hasty resolutions in the face of crisis such as the Patriot Act, Homeland Security, Iraq War. Each of these decisions have been debated for their wisdom in hindsight.

Democrats seem to be quickly narrowing their focus on their top concerns, and getting concessions to the plan. Treasury SecretaryPaulson seemed agreeable to House Finance Committee Chairman Barney Frank's quest for an oversight structure.

Likewise, both Republicans and Democrats are demanding some form of limitations on executive compensation for financial institutions participating in the rescue plan. TreasuryPaulson has pushed back, raising concerns that restrictions would cripple the use of the program.

Meanwhile, Treasury Paulson is getting much more resistance and less specific concerns from his own side of the political aisle. Senator Richard Shelby, the ranking Republican on the Senate Banking Committee simple offered that the plan was, "neither workable nor comprehensive despite its enormous price tag."

Markets Need Clarity

Meanwhile markets open and have to make decisions. As demonstrated in Monday's trading, with the Dow descending 372 points, markets need clarity.

Uncertainty and ambiguity within the $700 billion proposal wiped out the exuberance of Friday's "hope" trading triggered by leaks of the forthcoming bailout. Much of this loss was certainly a taking of profits from a historic one day rally. However, money continues to leave the market as investors hover on the sidelines awaiting clarity.

This is the argument of Secretary Paulson and advocates of swift and flexible action. Markets continue to be seized up as equities trade cautiously and credit markets tighten to an impasse. This impasse is created by trillions of dollars illiquid mortgage securities that will not trade and banks that will not lend because of these enormous liquidity risks.

Consumers May Feel Contagion

Contagion is a scary term to investors and bankers. Typically this is not a term important to main street consumers. However, we now live in very unique times.

Contagion is the tendency of economic crisis to spread from one market to the next, and the longer the market remains without clarity or relief the more consumers will learn this term. Without credit banks and businesses begin to implode. Much like the 300 plus mortgage companies that melted down overnight--business could fall similar fates.

Businesses need credit to finance inventories and receivables. Yet, without these short-term facilities production may need to stop, employees downsized, and some will collapse. This is why SecretaryPaulson and expediency advocates are lobbying for speed.

Debate, Reshape, or Swallow the Bitter Pill?

Without question both sides of the issue have strong arguments: additional homeowner stimulus and oversight versus expediency and focus.

The question is, "will politics yield to giving the patient the bitter medicine?"