EDITORIAL: No bailout

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The massive federal scheme ($700 billion and apparently growing) to have taxpayers buy up bad mortgages that is currently being cobbled together by the Bush administration and a bipartisan coalition on Capitol Hill is a terrible idea. It constitutes a large transfer of wealth from the American taxpayer in an effort to revive failed private-sector businesses that should be permitted to fail - something that is essential if a free-market capitalist system is to survive and prosper in the future. Aside from the dubious substance of the legislation, Treasury Secretary Henry Paulson, the Bush administration's point man in pushing for the mortgage bailout bill, is pressing Congress to act with what can only be called unseemly haste, insisting that if lawmakers do not fork over the money right away, the American economy will collapse. Congress may vote on the bill (which is still being written) as early as Friday.

This bailout package does not represent fiscal conservatism. It is untenable.

If ever there were legislation that deserves careful, deliberate analysis and consideration, it's this measure. If this legislation is needed to ward off a financial crisis, then it should not be rammed through in a fashion where members of Congress could not possibly have the time to study it. The $700 billion price tag is more than the annual cost of the defense budget. And in order to effect the rescue, Mr. Paulson proposes to have Freddie Mac and Fannie Mae - government-sponsored housing enterprises that Washington is already bailing out - expand their purchases of mortgage-backed securities. In other words, the Treasury Secretary's plan to fix the mortgage mess entails unloading some bad paper onto a pair of failed government enterprises that are already in the equivalent of receivership. Indeed, Fannie and Freddie helped fuel the mortgage crisis in the first place by becoming primary customers for subprime mortgage loan pools.

If anything, the $700 billion figure currently being quoted by the press significantly understates what this legislative monstrosity is going to cost taxpayers. Patrice Hill of The Washington Times reported that over the weekend, Mr. Paulson's Treasury Department dramatically expanded the bailout plan to include buying car loans, student loans, credit-card debt and other "troubled" assets held by banks. The changes - which were included in draft language opening the bailout program to foreign banks with extensive loan operations in this country - have the potential to add tens of billions of dollars to the cost of the bailout program. In his Monday counterproposal, Senate Banking Committee Chairman Christopher Dodd included such consumer loans in addition to mortgages.

This bailout proposal is fraught with political peril for Republican politicians who support it. In recent weeks, the Republicans had been staging a comeback of sorts, bolstered by the tough, principled stand that congressional members like House Minority Leader John Boehner, Senate Minority Leader Mitch McConnell and likeminded conservatives have taken on oil drilling. But if they continue to support Mr. Paulson and the Bush administration on the bailout, Republicans stand a good chance of throwing away the good will they have earned. The American public will ask, with good reason: Why should I vote for Republicans if they are going to join the Democrats in passing such irresponsible legislation that piles new debt burdens on my children and grandchildren? John McCain also needs to decide whose side he is on. While he has expressed concern about some procedural issues related to the bailout, Mr. McCain has indicated a willingness to support the package if his questions are addressed.

But the bailout legislation is unsalvageable. If Mr. McCain supports it, he can kiss any credible claim to be a "reform" candidate goodbye.