THIS BAILOUT NEEDS A BAILOUT.

We've already covered some of the problems with this bailout, but there is also the question of whether a bailout is the right approach at all. Should our response instead be more limited on Wall Street and more expansive on Main Street? Today, NDN's Simon Rosenberg stopped by to chat with our staff and made the point that no matter how the government addresses the problems of over-leveraged investment firms and bad paper, the only solution to the problem lies in the actual troubled assets themselves: homes. It's critical that the response to the crisis addresses these issues by keeping people in these homes, both because that is the right thing to do and because homeowners need to continue repaying their loans. (See the NDN's longer explanation here).

Two more data-points: Pulitzer-Prize-winning finance reporter David Cay-Johnston raises the question of whether there is, in fact, a credit crisis that requires a bailout. His argument is persuasive -- we haven't seen business-operating loans turned down, mortgages denied, or the end of credit-card offers. Combine that with this quote from White House spokesman Tony Fratto, on why the Bush administration opposes limiting CEO pay: "You have to remember, these are not all weak or troubled firms that own mortgage-backed securities. A lot of them are very successful banks and investment houses that have done very well, have been responsible, are holding performing assets that have value. They were not necessarily irresponsible players, and so you have to be careful about how you deal with them." Whoa, whoa, whoa, if they're so successful, why do they need the U.S. government to buy their bad paper at higher-than-market prices? This is why Congress needs to ensure that either this program is only for bankrupt companies or that taxpayers obtain an equity stake in any company bailed out.

The good news is that a lot of members of Congress were asking smart questions at today's hearing with the administration's financial leadership. The bad news is that it will continue to be hard, with the market tanking, to write responsible legislation. The key here is probably adaptability and a short sunset provision. But progressives should consider this bill a failure if it doesn't help homeowners stay in their homes, guarantee that the government isn't simply purchasing toxic assets from any firm that comes calling without gaining something in return, and directly address the regulatory issues that underlie the crisis.

Further reading: This CAP report on the mechanisms of a bailout; this Nation article by James Galbraith and William Black.

--Tim Fernholz