Comment & Debate
The Republican Study Committee – The Treasury plan fundamentally alters the nation’s free-market system in that it broadly socializes… money-losing mortgage assets and places the US on a slippery slope whereby profits will also be nationalized.[1]
Mark Stanford. “A Bailout for All Our Bad Decisions?”. Washington Post. 26 Sept. 2008 – It seems that each new crisis is met with a new answer from the government. After Hurricane Katrina, the federal government assumed roles traditionally handled by state and local governments. After the Sept. 11, 2001, attacks, the government federalized 25,000 workers through the Transportation Security Administration. The example of security-focused countries such as Israel, which elects to have that function handled by the private sector, did not matter. Now, our federal government is likely to commit three-quarters of a trillion dollars — more than last year’s Pentagon budget — to a bailout based on what happened in the credit markets last week.
An ever-expanding scope of federal commitment and power is not what made this country great. Expanded power in one place comes at a cost in other places. American cornerstones such as individual initiative and an entrepreneurial spirit — born in free and open societies with private property rights and the rule of law — have never fit particularly well within the context of an ever-growing federal government.
Larry Elder. “Failure To Be Real Capitalists Caused Crisis” Investors Business Daily. 25 Sept. 2008 – An indictment of greed! A case for more government intervention! Worst financial crisis since the Great Depression! Failure of capitalism! This list includes the “lessons” of the recent turmoil in the financial markets. Nonsense.
Down with greed!
Someone please produce the gun held to the temples of borrowers who put little or no money down, took out “teaser” rates, and then pleaded ignorance or victimhood when the lender — as stipulated in the contract — jacked up the rate. Lenders and borrowers expected government/taxpayers to somehow, some way, step in and shield them from the consequences of their decisions. This creates “moral hazard” — behavior based upon the knowledge of protection from the bad consequences of reckless or irresponsible behavior. Decisions entail risk, whether personal or financial ones.
We need more regulation!
We have it — lots of it. Ever hear of the Office of Federal Housing Enterprise Oversight? This agency, which employs 200 people, exists for one thing and one thing only — to “oversee” Freddie Mac and Fannie Mae, the “government-sponsored entities” that own or guarantee 40% of the nation’s residential mortgages. Mere months before Freddie and Fannie’s collapse and subsequent government takeover, OFHEO issued a report that saw only clean sailing. The Community Reinvestment Act, passed in 1977, mandated that lenders lend to high-risk borrowers — or else. The government actually held up prudent bank mergers if one or both sides did not sufficiently “lend” to borrowers who, under normal circumstances, failed to qualify. Why is the federal government in the housing business in the first place? We need less government, not more regulation.
…What do you say we actually try capitalism, where private actors reap rewards and assume the risk? “Capitalism,” says Kenneth Minogue, professor emeritus at the London School of Economics, “is what people do if you leave them alone.” People want “hands off” until, that is, they want “hands on.” People want homes, many preferring that option even when renting may be more prudent. Many want rent control to shield them from leasing at fair market rates. Democratic presidential candidate Barack Obama promises “world class” education — with taxpayers paying for it. And the federal government, in dramatic contradiction with the limited-government intention of the Constitution, involves itself in health care, guaranteeing private-sector retirement accounts, disaster relief, welfare, unemployment compensation benefits, retirement benefits, etc.
Jeff Jacoby. “Frank’s fingerprints are all over the financial fiasco”. Boston Globe. 28 Sept. 2008 – “THE PRIVATE SECTOR got us into this mess. The government has to get us out of it.”
That’s Barney Frank’s story, and he’s sticking to it. As the Massachusetts Democrat has explained it in recent days, the current financial crisis is the spawn of the free market run amok, with the political class guilty only of failing to rein the capitalists in. The Wall Street meltdown was caused by “bad decisions that were made by people in the private sector,” Frank said; the country is in dire straits today “thanks to a conservative philosophy that says the market knows best.” And that philosophy goes “back to Ronald Reagan, when at his inauguration he said, ‘Government is not the answer to our problems; government is the problem.’ ”
In fact, that isn’t what Reagan said. His actual words were: “In this present crisis, government is not the solution to our problem; government is the problem.” Were he president today, he would be saying much the same thing.
Because while the mortgage crisis convulsing Wall Street has its share of private-sector culprits they weren’t the ones who “got us into this mess.” Barney Frank’s talking points notwithstanding, mortgage lenders didn’t wake up one fine day deciding to junk long-held standards of creditworthiness in order to make ill-advised loans to unqualified borrowers. It would be closer to the truth to say they woke up to find the government twisting their arms and demanding that they do so – or else.
The roots of this crisis go back to the Carter administration. That was when government officials, egged on by left-wing activists, began accusing mortgage lenders of racism and “redlining” because urban blacks were being denied mortgages at a higher rate than suburban whites. [read rest of article at Boston Globe.]
“Steven Greenhut: Big Government meets corporate welfare”. Orange County Register. 27 Sept 2008 – The Bush administration is pushing for a $1 trillion-plus blank check – $700 billion just to buy bad mortgages – to bail out financial and other segments of the economy, complete with czarlike powers for the treasury secretary. This president has expanded the government by a greater percentage than LBJ, has created massive new entitlement programs, has further centralized education in Washington, D.C., and has advanced novel theories of executive privilege that obliterate some of the key checks on the centralization of government power crafted by the nation’s founders.
Can we at least dispense with the silly rhetoric and admit the obvious? This administration does not stand for limited government, the Constitution, fiscal responsibility or free markets. The last point is crucial. Supporters of free markets believe that government should enforce some ground rules, but that companies should compete with minimal intervention. Businesses are free to make an enormous amount of money, of course, but they also must be free to fail. Yet the administration has pushed one set of market interventions after another, and when big companies fail, it is quick to turn to you, the taxpayer, to cushion the blow. That’s not capitalism, unless one sticks the word “crony” in front of it.
Senator Jim Bunning, Republican of Kentucky – “It’s financial socialism, and it’s un-American.”[2]
Michelle Malkin. “Kill the bailout: Will the real fiscal conservatives please stand up?”. 22 Sept. 2008 – The battle over the Mother of All Bailouts is a battle for the soul of the Republican Party. A few fiscal conservatives like GOP Rep. Mike Pence are daring to stand up against this disaster. And where is GOP Minority Leader John Boehner? Chastising the Right not to oppose it because “This is not a time for ideological purity.”
What?! When is there a better time for conservative ideological purity than now — now that we face the most massive taxpayer rescue in American history spearheaded by a phenomenally wrong-headed, ChiCom-promoting, liberal Democrat-installing, Gore global warming alarmist?
Hell, yes, this is a time for “ideological purity.”
Ideological principle.
Ideological courage.
GOP Rep. Mike Pence – The Administration’s request amounts to the largest corporate bailout in American history. Congress should act, but should act in a way that protects the integrity of our free market and protects the American taxpayer from more debt and higher taxes…To have the freedom to succeed, we must preserve the freedom to fail. Any solution to our present crisis must preserve our essential economic freedom.[3]
…“We must address this crisis with forethought, creativity and fiscal discipline. Protecting the American taxpayer from higher debt and taxes and renewing our belief in the power of the free market must be our guide.”
Daniel Mitchell, as senior fellow at the Cato Institute. “Bailout Would Impose Needless Economic Damage”. Real Clear Politics. 1 Oct. 2008 – Why the Bailout is Bad for America. The bailout is bad for the economy. The unfortunate truth is that bad government policy has resulted in excess investment in the housing sector, and the inevitable reallocation of labor and capital is going to cause some economic dislocation. The good news, though, is that this process – if not hindered – will create a stronger and more vibrant economy. A bailout, however, will discourage this process and reduce economic efficiency. This may not seem important in the short run, since modest changes in the rate of economic growth are difficult to perceive. But in the long run, because of compounding, even small changes in the rate of growth can have a significant impact on living standards. Small differences in annual growth rates are why disposable income in the United States is substantially higher than disposable income in nations that practice economic interventionism, such as France, Germany, and Japan.
The bailout repeats the mistakes Japan made in the 1990s. There are several historical episodes that indicate the dangers of government intervention to prop up a bubble. Japan faced a similar situation at the end of the 1980s, with real estate prices rising to absurd levels. The bubble then burst, but rather than let market forces operate, Japanese politicians sought to prop up both insolvent institution and asset prices. This interfered with the orderly reallocation of labor and capital, created considerable uncertainty, and contributed to a “lost decade” of economic stagnation. Another worrisome parallel is what happened during the 1930s. Policy mistakes such as protectionism (Hoover), higher tax rates (Hoover and Roosevelt), increased government spending (Hoover and Roosevelt) and increased intervention (Hoover and Roosevelt), helped turn a stock-market correction into the Great Depression.
Representative Darrell Issa, a Republican from California, said that supporting the $700b bailout would be like placing “a coffin on top of Ronald Reagan’s coffin.”[4]