Get TARP Through the House

The US Senate passed the Troubled Asset Relief Program (TARP) last night in a vote 75-24. My boss called me to see if I was watching the vote, but much to his dismay, I was playing ping pong at Comet while the fate of the world economy was being decided.

The bill now moves to the House for a vote on Friday, October 3. The bill should, and I believe will, pass the House with a margin of 10-20 votes.

The revised legislation now includes several provisions that were not in the original measure voted on by the House: namely, to increase the FDIC insurance to $250,000 from $100,000 and to extend tax relief for households and business for two years.

These added measures will help representatives defend themselves to their constituents when they have to explain their switch from a "no" to a "yes" vote. Many congressmen who voted nay are in close races and I can imagine that facing their districts with a flip flop on a "$700bn bailout" would be a difficult sell for re-election. Those who oppose the additions to the bill claiming they have nothing to do with the financial system will have to swallow their frustration too. Part of law making is democracy.

Most importantly, House members should swallow their pills for the health of the economy. If Congress fails to bring liquidity to credit markets, purchasing a car, getting a business loan, or using money markets to finance daily corporate activities will be hampered. Businesses that could otherwise survive will fail, students that could otherwise get college loans will work in the low wage service sector jobs changing bed sheets or flipping burgers. A look at the historical example of Japan will show that financial crises take a long time to sort out and that delayed action prolongs a recovery.

Our own stock market showed revulsion to Monday's no vote and since we have seen news of manufacturing, auto sales, and home prices in further decline. The crisis has already clearly spread beyond Wall Street.

As the economy adjusts to housing price declines and to the deleveraging of the credit bubble, we need the government to step in and support a systematic deleveraging rather than letting the economy plunge, overshoot, and suffer from prolonged recession. The sooner we act, the more orderly and less damaging the downturn will be.

Lawmakers must pass this legislation and prepare for what is likely to be a series of large government interventions. The sooner America addresses the problem at hand, the more prepared Congress will be to deal with subsequent waves of the crisis.