As Monday's stock market fire sale amply demonstrated, fixing the credit markets and the economy is going to take some time. The task is broad, deep and enormously complicated. Last week's belated approval of a $700 billion bailout was only the start of that work, not the completion.
But just as Washington is vowing to more closely regulate the markets in response to the financial meltdown that has put jobs, pensions and the world economy at risk, Washington also needs to see that its own bailout legislation is managed correctly. It is entirely possible that something so difficult and complex could go wrong.
Meanwhile, banks are hoarding money to cover poor real estate loans and prepare for any kind of run on deposits.
Officials began putting the legislation into effect on Monday, only three days after the House of Representatives reversed its previous vote to approve the bill. The Federal Reserve announced plans to direct money into the banking system, and the Treasury said it would increase its bond sales to pay for the rescue package.
The Fed also flexed new muscle to begin paying interest on reserves that banks must keep there. The hope is that, with interest now being paid, banks will keep more funds with the Fed. In addition, the Fed plans to double short-term loans to financial institutions, to $900 billion.
Reports on Monday were that the Bush administration planned to name Neel Kashkari, an assistant secretary of international affairs, formerly with Goldman Sachs, to oversee the program on an interim basis until a permanent director is named. That seems a good approach, since a permanent appointment should fall to the winner of next month's presidential election.
But the administration and Congress need to set up oversight procedures to track and correct as necessary the rollout and management of this unprecedented effort to stabilize the economy. First and foremost, it is essential to determine if the combination of tools provided in the bailout bill is sufficient to do the job.
There are no guarantees the bailout will work, and it will not be easy to implement all of the details. Indeed there already seems a need to loosen a credit freeze by also addressing interest rates and, as we have noted before, the credit markets. The Fed started that Tuesday, by buying up large amounts of the corporate debt known as "commercial paper" in an attempt to restart short-term business lending. The rescue plan is not an overnight process, but it was critically important for the federal government to do something to slow the bleeding and start restoring confidence in the markets.
Now it will take knowledgeable, savvy monitors to ensure that the bailout effort provided by taxpayers -- many of whom are also in some form investors, at least through retirement plans -- provides the maximum benefit to Main Street as well as Wall Street.