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Economy Tops Congressional To-Do List

If Congress didn't already have an urgent to-do list awaiting its return from this two-week recess, it certainly does now.

The volatility of U.S. and global financial markets, headlined by the Federal Reserve's bailout of Bear Stearns and an expected interest rate cut today, should be all the impetus Congress needs to wade into the crisis, most likely by passing a massive housing bill that has been inching its way to the surface in both the House and Senate.

Backers will call it "stimulus," critics may dub it a "bailout." Either way, a consensus appears to be forming on the Hill that Congress needs to do something quickly to calm jittery markets and reassert its role in helping to manage the economy, particularly the housing sector, rather than simply ceding the field to the Fed and President Bush.

The base vehicle for Congressional action looks to be a plan, floated by House Financial Services Chairman Barney Frank (D-Mass.) and Senate Banking, Housing and Urban Affairs Chairman Christopher Dodd (D-Conn.), that would push the Federal Housing Administration to insure mortgages to "distressed borrowers." The plan's backers hope that a federal guarantee of those mortgages will motivate lenders to allow borrowers to refinance at more favorable rates, based on the theory that lenders would prefer to get repaid at least some of what they're owed rather than risk having more borrowers go into foreclosure when their adjustable rate mortgages balloon in the coming months.

In a statement Monday, Dodd criticized Bush for his actions so far and urged the White House to come to the bargaining table.

"For its part, the Administration has offered only timid measures that have done little to help families keep their homes or restore confidence to financial markets," Dodd said. "It is time for the Administration to embrace a more comprehensive, bold, and effective approach that goes to the heart of the current financial crisis -- the mortgage markets."

And the always outspoken Frank was more blunt, saying after Bush made brief remarks on the economy Monday that the president "has no idea what's going on. Even by his standards, he's wrong."

The two chairmen and other Democrats will surely cast the issue in populist terms: The Fed is bailing out wealthy Bear Stearns in order that it could be sold to JPMorgan Chase, so Congress should do its part to bail out the average Joe struggling to make his mortgage payment.

Of course, the devil is in the details. How big would the bailout be? Republicans are wary by nature of the federal government injecting itself too assertively into the economy, and many conservatives will warn against moral hazard - in this case, the risk that people who took on mortgages they couldn't afford will be insulated from the consequences and so might make the same mistake again.

When Congress passed an economic stimulus package last month, all sides showed a rare willingness to meet in the middle. Speaker Nancy Pelosi (D-Calif.) sat down at the bargaining table with Hill Republicans and the Bush administration and quickly cut a deal. Will Democrats show the same willingness to negotiate this time around? Or will the majority calculate that popular sentiment is on their side and decide to push through some form of the Frank-Dodd plan, daring Republicans to vote no and Bush to break out his veto pen?

The answers to those questions won't begin to emerge until the House and Senate return to action March 31. Until then, members of Congress will be in the same place as the rest of us -- on the sidelines, watching the markets and wondering when the next shoe will drop.

By Ben Pershing  |  March 18, 2008; 11:43 AM ET
Categories:  Agenda  
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Comments

When you take out a Trillion dollar mortgage and lie on the application, your going to lose your shirt when the lenders come calling. Everyone knows why the economy is in the sh+tcan. Thanks to the Republican President and Congress. Heckuva job Bushies!!

Posted by: thebobbob | March 19, 2008 1:15 PM | Report abuse

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