Conservative House Republicans Save the Day
It has been reported that conservative Republican members of the House of Representatives have offered a “free-market alternative” to the $700 billion plan to bail out the mortgage industry proposed by Treasury Secretary Paulson, Fed Chairman Bernanke and President Bush. A vote today in the House failed, though Democrats will continue twisting arms and cajoling House Democrats to change their vote the next time around.
I don’t believe a bailout as proposed is necessary to save the economy from a major failure of multiple financial institutions at the same time.
There are different opinions by a lot of smart people who know Wall Street, banking and the economy quite well. Some will tell you that a bailout is absolutely essential but over 400 economic experts, including some Nobel Prize winners, are skeptical. There is a pending financial crisis mainly because Paulson says there is. He raised the issue by going to the public in a very high-profile way, not just with his concern, but with a kind of “Chicken-Little, the-sky-is-falling” demand” and it became a self-fulfilling prophecy.
Once Treasury Secretary Paulson announced there is a pending financial collapse, “perhaps as great as the Great Depression”, congress was in the position it felt it must act. However many members of congress were stunned at that news, and were equally surprised they didn’t hear from bankers in their districts. Some members called bankers and heard a different story. Business author David Freddoso reported local bankers as saying “I think things are just fine.” Freddoso also said he talked to one banker who said, “Gosh, we’ve got money, and we’re liquid, and we’re making a profit. And we’re in the market selling loans, and we’ve got competitors trying to sell loans against us.”
Paulson claims we will have a catastrophe of generational proportions that could go worldwide but what is reported from banks other than the huge Wall Street houses like Goldman Sachs and Morgan Stanley is quite different. Few if any of the local bankers are indicating they can’t borrow money. If Paulson was right, after he announced on Friday that there was a crisis of liquidity that threatens the entire nation’s financial solvency and Americans’ jobs from coast to coast would be lost, you would expect that community bankers around the country would call their representatives to demand something be done and that they would ask them to back Paulson’s proposal; but that did not happen.
Paulson has asserted we are in deep trouble but he is not convincing to all bankers and he has not had everyone rallying to his side saying he’s absolutely right. Those in the banking business should be saying and calling for the government to get involved if they were experiencing the crisis Paulson claims exists. It looks to me that if there is a problem, the problem is Paulson himself and his desire to help big brokerages like Goldman Sachs where he came from.
With the type of drastic “solution” being proposed, why can’t congress take the time to learn about the problems and deliberate in a reasoned manner (at least to the extent congress can) and wait a little longer, to make sure a bill is produced that is right?
I’m cautiously optimistic that we can solve any real problem but congress needs to hear from more expert economists with differing opinions. For example, the insurance proposal some suggest may be significantly better. There are clearly undesirable implications in the language of earlier executive drafts that would have the government take ownership interest in all the banks that have so-called “toxic” assets to be bought. I have a real problem with deviating from the free market system and allowing government to own a huge sector of our economy by buying assets or even partially controlling them. Can you imagine a banking system where the government owns as much as a third of our banks, or perhaps even half?
John McCain went to Washington and said “Here are my five points, and beyond that, I’m with House Republicans.” In response Paulson used fear; some say “fear-mongering”, in an effort to stampede the Congress. The only people standing in his way at the time were House Republicans; they kept congress from passing Paulson’s bad idea which was to give him $700 billion to spend without restrictions. We all should be grateful to these House Republicans.
All polls show the public opposes the bailout by huge margins; this could be another situation like the oil drilling and amnesty issues where the public caused congress to reverse the Democrat and Bush administration direction. That’s why conservatives, and clear thinking Republicans, want to distance themselves from Bush and his domestic policies. As for Paulson, this should be a good example to all future Republican administrations not to include Democrats in the cabinet.