- The Washington Times - Friday, September 26, 2008

ANALYSIS/OPINION:

ANALYSIS/OPINION:

COMMENTARY:

Honestly. A clean bill as requested by Treasury Secretary Henry Paulson, along with Sen. John McCain’s oversight board, can help fix the credit-crunch problem. It needn’t be this hard.

According to the Paulson plan, distressed assets will be sold by banks through a reverse auction (the low bid wins) to various investment funds, hedgies, private-equity boys, and other banks. And taxpayers will have a strong ownership position in these asset sales. When the assets are worked out over time — as they will be once housing and the economy recover — taxpayers will actually make money on the deal.

This is similar to the Resolution Trust Corp. story 20 years ago, when Bill Seidman presided over similar asset sales from bankrupt savings and loans and wound up making money for Uncle Sam and his taxpayers. A long prosperity wave followed.

In fact, industry insiders tell me the Federal Reserve and the Securities and Exchange Commission may be moving toward a five- to seven-year amortization plan for the scoring of bank losses from the sale of this distressed paper. This is very constructive. Federal Reserve Chairman Ben Bernanke also is talking about getting rid of mark-to-market accounting and moving toward “hold to maturity.” This is good.

But the credit arteries are now clogged with a terrible virus that can be removed by the Paulson rescue plan. And as the problem is solved, credit and loans will be made more available to Main Street homeowners, small businesses and consumers of every type. Credit markets will gradually unfreeze. It can be done. A deep recession can be avoided.

And maybe along the way we can get a strong King Dollar to fight inflation and attract international investment. And perhaps, just perhaps, we can get more drilling to reduce gas prices at the pump - a big recovery tonic. And, dare I hope, maybe we even can get corporate tax reform with lower tax rates, which along with energy deregulation will spur jobs and wage growth.

But after Tuesday’s Senate hearing I’m very concerned. The bells and whistles that would be attached to Mr. Paulson’s plan by our Democratic friends are anti-capitalist and anti-opportunity.

Capping compensation for both the selling and purchasing institutions? What? Salaries and bonuses are no business of the government. People go to work for profits. For opportunities. It’s at the heart of our free-market capitalist system.

Now, I can understand companies like AIG, Fannie and Freddie, which effectively have been nationalized. That’s different. I don’t care if they all make $75,000 a year, just like the regulators. But to stretch this to the banks that are selling or buying the assets goes beyond the pale. It’s France. But it’s France heading toward the old Soviet Union, or at least Czar Vladimir Putin’s Russia.

And then there’s the ownership question. Some Democrats want Uncle Sam to take an ownership position in all the selling and purchasing banks. This is nuts. In America, this is nothing but property confiscation. It also will sharply curb buyers of the distressed assets.

You think Henry Kravis or Steve Schwarzman will take a salary cap and lose an ownership share of the private-equity funds they themselves created and built? They shouldn’t and they won’t. And these funds are crucial to the new process. The only banks that will sell in this overregulatory environment are the absolute, near-bankruptcy turkeys.

Meanwhile, Mr. McCain apparently has proposed that the buying and selling banks have compensation levels no higher than the top paycheck in the U.S. government, which I guess is the president’s at around $400,000 a year. Hey, I’ve got an idea. Let’s raise the chief executive’s pay to $50 million. He probably earns it anyway.

It’s these congressional bells and whistles that really trouble me. And they also trouble the stock market. Stocks absolutely roared last Thursday and Friday when they got wind of Mr. Paulson’s program. But Monday and Tuesday, as the new details leaked out and various Democratic senators put their ideas on the table, shares plunged big time. What does that tell you?

I can understand legitimate concerns about a big-government intervention and a giant $700 billion number. There’s a shock effect here. But once in a while the financial center of capitalism goes into panic mode and something has to be done.

Actually, it’s a marvel that we permit government to infrequently come to the rescue of our credit system. It doesn’t happen everyday. But it has been necessary going all the way back to Alexander Hamilton’s original rescue of our failing debt system in the 1790s.

Understanding this history, conservatives should not panic or walk away from the Paulson assistance plan. It would be great to avoid either a deep credit-driven recession or a global banking meltdown - or both. Mr. Paulson has always viewed his rescue plan as an economic-growth tool. I think he’s right.

Lawrence Kudlow is host of CNBC’s “Kudlow & Company” and is a nationally syndicated columnist.

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