Memo to Congress: Act now

HOUSE Financial Services Committee chairman Barney Frank describes the economic recovery plan as a three-legged stool: thaw the credit markets; stop the hemorrhage of foreclosures; and stimulate the economy. Without all three legs standing, the recovery will be shaky, at best. So it is worrisome that so far the $700 billion bailout plan for distressed financial institutions is falling short of its goal.

Banks that are getting bailout money haven't been quick enough to lend it out to companies and consumers. Some of the banks are hoarding the cash, or are using it to buy up weaker rivals or repair their own balance sheets.

Plans to help people threatened with foreclosure also have foundered. Some troubled mortgages have been sliced into new products and traded as securities so many times that they can't be reassembled to take advantage of new terms even if mortgage servicers were willing to refinance. Meanwhile, a record 1.2 million homes were in foreclosure during the second quarter of 2008.

And now we learn that congressional Democrats do not believe they can pass even a modest $50 billion stimulus package that would immediately create jobs and help states that have been slashing their own budgets. At best, the lame-duck session convening this week will address expiring unemployment benefits, but an aggressive infusion of cash may be put off until President-elect Barack Obama and a new Congress take office in a little over two months.

That is too long to wait. Postponing action on the economy will only prolong and deepen the recession and further erode consumer confidence, already at historic lows. The situation is urgent. Last week, three American cities - Philadelphia, Phoenix, and Atlanta - asked Treasury Secretary Henry Paulson for another $50 billion in emergency funding to avoid budget defaults.

On Friday, a frustrated Federal Deposit Insurance Corp. chairwoman Sheila Bair offered her own plan to encourage mortgage servicers to lower interest rates on troubled loans to as low as 3 percent, which she said could help 1.5 million distressed homeowners avoid foreclosure. Unfortunately, Paulson is resisting using any of the bailout money for direct aid to homeowners. Frank plans to call Paulson, Bair, and several others to a hearing today to review the progress of the recovery plan.

When he visited the Globe last month, Frank was cautiously optimistic that if a stimulus plan of $150 billion could be passed in mid-November, and if mortgage servicers aggressively reduced foreclosures, the economy could hit the bottom of the recession next summer, and then turn around. That is too many ifs for comfort.