Sept. 25, 2008 -- Former Treasury Secretary Paul O'Neill said today that our nation's leaders -- especially President Bush -- are "in a panic" and haven't thought through the $700 billion bailout plan in a rush to pass it by the end of the week.
"I don't think he understands or knows much about any of this and it shows," O'Neill said, adding that current Treasury Secretary Henry Paulson "knows a lot of about this, and it's good that he's there."
O'Neill, who served as Bush's first treasury secretary until being fired over diverging views with the president about tax cuts and other issues, didn't have favorable things to say about the economic policies of either presidential candidate, Democrat Barack Obama or Republican John McCain.
"I think most of what has been said by both campaigns about economic stuff is ill-informed and ill-advised," he said. Asked for specific problems, O'Neill said: "Everything."
"Hopefully, whichever one of these two people ends up being president, my prayer is that they will be better than what they have said in the campaign," O'Neill said in an interview with ABC News this afternoon.
"We have spun ourselves into a position where intelligent people don't believe they can tell the people the truth and still get elected, so they pander," he added. "One can only hope that they understand the difference between campaigning and governing, and that their governing will be better than what their campaign said."
The Bailout Plan
O'Neill said that "we do need to do something to avert a complete collapse of the credit system" but added the administration's bailout plan shouldn't be the only option.
"It is possible to re-liquefy the credit system without 'We the People' owning $700 billion worth of homes," he said.
Instead, O'Neill would like for the government to calculate the present value of the mortgage-backed investments and then insure, rather than own, those assets.
Essentially, O'Neill said, we run the risk of become the largest owner of foreclosed properties in the world.
"We have notoriously no capability to do anything like that," he said. "There is no agency of government that could actually do that job."
Praying for Congress
O'Neill is pegging his hopes on Congressional leaders to investigate that option, because the Bush administration has the "door locked and they haven't taken on any new ideas."
So why is the president and his administration pushing so hard for this plan?
"I think it's because they're in a panic and they haven't thought about it very well," O'Neill said.
The bailout process risks being bogged down by a number of "sideshow issues," O'Neill added, including executive pay and aid for homeowners.
"Not a lot of people are saying, 'Slow down.' They've actually done something a lot worse than say, 'Slow down.' They've introduced a whole bunch of sideshow issues like executive compensation and oversight committees," O'Neill said. "All of that stuff is not relevant to the central problem of re-liquefying these financial instruments."
He said there is "flagrant overcompensation" of CEOs but that is a separate issue that is not relevant to the crisis.
"This is a sideshow, and it's frankly irritating as hell that the political process is so incompetent that it can't differentiate the important from the trivial," O'Neill said. "Right now, we have a kind of stay of execution, and workable, meaningful legislation is the only thing that is going to keep us from getting executed."
Helping out homeowners is also a separate issue in O'Neill's mind.
"It's not to say that you don't feel compassion and sorrow for people that have got financial problems," he said. "But if your solution is to give them more money, then you're going to have to take it away from somebody who's got it."
Having this crisis hit right before a key election is not helping.
"It complicates it because [Congress is] wanting to rush out of town &133; and get reelected," O'Neill said. "So rather than doing this in a deliberate way and hearing from a lot of different, careful points of view, they desperately want to be able to leave town on Friday and not come back until the day after the election."
Mortgage Meltdown Causes
O'Neill said we got into this mess because bankers were not making prudent decisions, because they believed that by reselling mortgages to Wall Street they weren't going to be stuck with the problems.
"We suspended disbelief and said we can take people with no known source income or wealth generation and we can give them a $500,000 mortgage," he said. "I think there's a very important thing: When you violate fundamental principles of economics you can get away with it for a while, but eventually it's going to get you."
Does O'Neill wish he was still in office?
"I wish I was there two years ago became I think I would have blown the whistle on these unbelievable loan practices and we would never gotten to today," he said. "That might be wishful thinking. It's not possible to really know that. But I'm a detail guy and I think I would have been paying enough attention to the details that I would have stopped the music."
O'Neill has been asked by the Obama campaign "on several occasions" to take part in conversations with the candidate on the economy with the understanding that his participation doesn't represent an endorsement. He said he would be willing to offer the same help to McCain but hasn't been asked.
Last Friday, he was on the telephone with an Obama meeting that involved the candidate, his running mate Sen. Joseph Biden, investor Warren Buffet, former Federal Reserve Chairman Paul Volcker, former treasury secretaries Larry Summers and Robert Rubin, and the former chairwoman of the President's Council of Economic Advisers, Laura Tyson.
"I'm happy to be part of that kind of opportunity to talk about serious issues and bring the knowledge I have to bear on what people are thinking," O'Neill said. "I'm happy to do that, and I'd do it for either party."