The ‘Bailout From Hell’ Must be Rejected

Bob Hubbard

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Press Releases › The ‘Bailout From Hell’ Must be Rejected
September 25, 2008 12:11 pm EST
Published at the Huffington Post ...

In the name of restoring economic confidence, the Bush administration is demanding unlimited authority to implement a massive financial bailout. The Secretary of the Treasury would become an economic dictator, empowered to re-engineer the economy as he sees fit. These powers fit Kim Jong-il's North Korea, not the American republic.

The economy is in trouble, but the wrong policy could make things much worse. With the public deeply divided over the proposed bailout, and the future structure of our economy at stake, Congress must stop and take a deep breath before rushing such a far-reaching plan into law.

Rep. Barney Frank, Chairman of the House Financial Services Committee, claimed: "The private sector got us into this mess, the government has to get us out of it." In other words, "Let's just put Sen. John McCain or Sen. Barack Obama in charge and everything will be fine."

This is nonsense. This is irresponsibility of the highest order.

The financial crash is not a "crisis of capitalism." It is the result of foolish federal policies manipulated by private interests -- precisely how Washington always operates. Giving Washington more power is no solution.
The federal government cannot eliminate financial losses and should not attempt to do so. It can only shift the burden -- in this case from irresponsible borrowers, lenders and investors -- to taxpayers. Keeping the walking dead on economic life support will only slow down necessary adjustments. The federal government's principal responsibility at a time of financial stress should be to maintain liquidity for use by otherwise sound institutions.

Congress certainly should reject an unrestricted, economy-wide purchase of mortgages and mortgage-backed securities, as well as "other financial instruments" at the Treasury's discretion. Interest groups already are lining up with their hands outstretched, including mortgage lenders and insurance companies, municipalities and foreign banks. The congressional Democrats even want to include home heating assistance and another wasteful "stimulus" package.

If the administration believes there are financial institutions so critical that their failure would put the entire economy at risk, then the president should identify those institutions and make the case for aiding them to Congress and, more important, to the American people.

In any case, Congress should emphasize accountability. The administration has proposed a bare, two-page law including an extraordinary provision declaring: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

The secretary would be able to decide which assets to buy from whom at what price and in what manner. Both the Republicans and Democrats would benefit from Treasury's unreviewable power to hire consultants and choose firms to implement the bailout. This is a prescription for extravagant waste, incompetence and abuse.

The Bush administration played this game before, using 9/11 to ram the Patriot Act through Congress, and then misused its authority while resisting court oversight. Never again should Congress allow itself to be duped in this way.

Congress must address the causes of the current crisis; most of which stem from government missteps.

Take the Federal Reserve, for example, which has untrammeled discretion--of the sort being sought by Treasury Secretary Henry Paulson--to mismanage the money supply.

The Fed's easy money policy helped create an economic bubble. Everyone from consumers to investment banks over-extended themselves. Prices for commodities, and especially houses, rose dramatically. We must hold the Fed accountable--or even replace it--to ensure sound money that is safe from political manipulation.

Second, Fannie Mae and Freddie Mac were used by Congress to simultaneously expand mortgage lending and enrich politically influential interests. The two entities must be fully privatized, and left with no federal support, guarantees, or dictates.

The Community Reinvestment Act is used to force banks to make bad loans to poor credit-risks in inner-city neighborhoods. Some of the politicians who now denounce "predatory lending" previously attacked those same banks for not lending. The CRA should be repealed.

Finally, expansive but disjointed regulation has failed to deliver transparency, which allows firms and investors alike to know their exposure. In fact, some regulations have been counterproductive.
For instance, the Securities and Exchange Commission enforces "mark to market" accounting rules that requires firms to write down assets--even those held for income rather than trading purposes, to current values. In today's unstable circumstances, one fire sale of an asset of uncertain value can ruin an entire industry's balance sheet. The SEC should suspend the rule's enforcement until accounting agencies and regulators can reevaluate its impact.

"My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became," lamented President George W. Bush. So, he would turn capitalism into a government-protected enterprise and Uncle Sam into an ATM machine for economic failures. Congress must say, "No." Why should we, the taxpayer, believe the people who got us into this mess when they say bailing them out is the only solution?

Bob Barr is the Libertarian Party's presidential nominee, and represented the 7th District of Georgia in the U. S. House of Representatives from 1995 to 2003.
 

arnisador

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Yet, WaMu just fell and if it weren't for the FDIC people would've been losing money, right? The situation is screwed up. It's not clear to me that ignoring it is the right answer. Who will pay for the starving senior citizens when their retirement investments go belly-up? I spoke the other day with a colleague who invested in bonds (safe, right?) backed by the Galveston, TX hotel tax. Even bonds aren't perfectly safe. Some govt. action is likely appropriate here, though I agree that letting the markets work is a good idea in general. But the mortgage market is regulated already by many laws and so is hardly pure capitalism at work.
 

Sukerkin

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From the point of view of an Englishman trained in the arts economic, that's pretty sound reasoning there.

This is an economic problem, not a political one per se. It was, however, created by political choices and not just ones from the current administration.

This is a problem that was born with the creation of the Federal Reserve (such an inoffensive sounding name isn't it?) and the idea of running a nation on credit (aka debt).

To ensure that it wont happen again, two political decisions have to be taken to restore a measure of economic stability. The first is that the money supply must be brought under the control of the government - to have it run as a private enterprise, to whom the government must go 'cap in hand', is madness. The second is to combine abolishment of the excessive iteration of fractional reserve banking with a return to a currency based upon something real, economically tangible. Electronic money is another 'bomb' waiting to go off.

Now, the big problem is, like nuclear weapons, the genie is already out of the bottle and the short term effects of returning to a 21st Century equivalent of the Gold Standard will not be pleasant when the rest of the world does not follow suit - effectively making them appear relatively much 'richer'. The longer term benefits are strong tho', particularly with regerence to eliminating currency speculation - a monstrous global gambling cartel that helps engender booms and busts for the sole purpose of profit to the speculators.

Bring a semblance of order to the money supply and the stock exchange and the long term stability of the economy is much improved - that is the part that directly effects every individuals life and is the one part that the present system doesn't address with any concern whatsoever.
 

zDom

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Hear hear!

NO on the bailout.

And criminal charges and hefty fines for those who have exploited the system!
 
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Bob Hubbard

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Going back on the Gold standard would be a bad thing, as more than half of US currency is outside the US. It would empty Ft. Knox.
 

grydth

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Hear hear!

NO on the bailout.

And criminal charges and hefty fines for those who have exploited the system!

For the first time today, I have seen the FBI is looking into some of these corporate renegades.

I wish them the best of hunting.
 

Sukerkin

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Going back on the Gold standard would be a bad thing, as more than half of US currency is outside the US. It would empty Ft. Knox.

You have to understand that there is probably not enough gold in the world, let alone Fort Knox, to 'back' currency any more. That has been one of the side-effects of allowing money to be 'imaginary'. You have a bloated money supply that consists of worthless promisory notes, the value of each of which drops over time necessitating the creation of ever more of them.

To return to a 'Gold Standard' would involve re-balancing the books and it would not be an easy task. Recovering the externalised portion of the money supply would have to be achieved over time if it was to be done without a major dislocation of trade. It's not a simple issue and I would not attempt to dress it up as such but it is an important one.

Unless currency is based upon something of a widely accepted value, the supply of which is essentially fixed, then the problems we are witnessing now will occur again and again and again. I think I heard one of America's economic pundits saying something about a major readjustment in the fiscal markets being necessary every century and tho' he was talking about something else the idea is true at it's core. Nothing grows eternally but it is that very predication that underpins 'paper' currency issue.
 
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shesulsa

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How many of you are writing your representatives and senators telling them you want them to reject the bailout deal as it stands?
 

jarrod

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bush is demanding unlimited power? there's a shock.

jf
 

Ninjamom

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....This is a problem that was born with the creation of the Federal Reserve....and the idea of running a nation on credit (aka debt).
>
>
To ensure that it wont happen again, two political decisions have to be taken to restore a measure of economic stability. The first is that the money supply must be brought under the control of the government.....The second is to ....... return to a currency based upon something real, economically tangible.
Three cheers and both thumbs up (and both big toes, too)!!!!!!!!

Beautifully stated and exactly right. I tried clicking your reputation link (I would have clicked it five times for this one post), but I received the dreaded, "you must spread some reputation around..." message. Too bad. Please, Sir, consider yourself reputed.
 

jarrod

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How many of you are writing your representatives and senators telling them you want them to reject the bailout deal as it stands?

i did thanks to your handy link. like others i remain doubtful that my opinion will matter much.

jf
 

Sukerkin

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Three cheers and both thumbs up (and both big toes, too)!!!!!!!!

Beautifully stated and exactly right. I tried clicking your reputation link (I would have clicked it five times for this one post), but I received the dreaded, "you must spread some reputation around..." message. Too bad. Please, Sir, consider yourself reputed.

Thank you, good lady. I to have had the same problem with regard to your goodself for your excellent post in another 'economics' thread that laid out the point of view of a 'small business' so well :tup:.
 

Cryozombie

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How many of you are writing your representatives and senators telling them you want them to reject the bailout deal as it stands?


I did, but I don't think they pay much attention to email.
 

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