We need a 'workout,' not a 'bailout'

Skepticism about the Paulson bailout is swelling. But what does it mean -- that Congress will go through a limited-hangout of grumbling, and then cave in? We are told that if a drastic bailout doesn't happen soon, the entire global financial system will go kaput. But why does a rescue have to follow the Paulson lose-you-win prescription? Instead of a bailout, why not a workout? Why not bring everybody together -- Wall Street, Main Street and Washington -- to agree to a plan that would achieve the desired results. That's two big challenges: Blunting the panicky run on the financial system that, sooner rather than later, might collapse it, and creating a template for long-term investment in our country's human and physical assets?

The financial situation is bad, but is it a precursor to the total disintegration that occurred in the Great Depression? Back then, stock was owned primarily by wealthy families. There were few mutual funds or institutional investors. In other words, the government could do nothing but jaw-bone that things would get better -- which is what President Hoover did. The stock-owning families, having no recognized community of interest, caved -- sometimes literally out of windows. But today most stock is held by mutual funds and institutional investors. While they are not immune to panicky fears, they could be reasoned with if the pitch came from all the major interests.

Why not create a "trust" consisting of key government players -- including Treasury and the financial and housing oversight agencies -- and Wall Street and Main Street. This trust would structure not a "bailout" but a "workout." A workout would require everyone to tighten his belt for a few years until economic circumstances improved, and the "toxic" loans became healthy ones. The federal government would provide a flow of funds to financial institutions that showed responsibility in trying to solve the crisis -- loan by loan, month by month. If we can't agree that's possible, then we have no faith in capitalism. At that point, why not turn the country over to a Chavez or Castro?

If you want to do a little history on bailouts, go back to the Emperor Hadrian, who, in 118 A.D. forgave a huge amount of taxes owned to the empire's treasury by the big guys. It didn't work. Rome's decline continued. Marcus Aurelius tried another bailout toward the end of that century. Didn't work either. Someone might say, hey, Rome kept going for many years after Hadrian and Marcus Aurelius. But reread Gibbon, and get a renewed feel for the brutish -- hellish -- life in the empire during its last 200-plus years. Do we want to bequeath to our children and their children that kind of life?