The politics of the bailout
By Michael M. Bates
So how did they come up with that $700 billion bailout figure? A Treasury spokeswoman told Forbes.com last month: "It's not based on any particular data point. We just wanted to choose a really large number."
That they did and, in so doing, scared a many Americans. Watching cable news after the House sensibly defeated the bill ratcheted up anxiety. When the markets closed with a record drop in the Dow Jones, the media mavens were shooting for their own personal best in high dudgeon.
How dare House Republicans fail to approve the bailout, particularly after Speaker Nancy Pelosi persuaded Democrats to – as one CNN anchor asserted – overwhelmingly back it? An undoubtedly innocent lapse kept him from reporting that almost a hundred Democrats voted against the measure.
It was apparent the bailout was in trouble early. Just introduced, the word was the bill must be approved now, immediately, without delay, stat, pronto. Next week will be too late; it must be done now. It all sounded like something you'd hear from a used car salesman.
Consider the two Democrats designated to negotiate and draft the legislation. Barney Frank (D-MA) is the House financial services committee chairman.
Barney is in a unique position to address the crisis since a major component of it is subprime lending. The federally chartered Fannie Mae and Freddie Mac lending institutions, pressed by Jimmy Carter, Bill Clinton and others, assumed the unwarranted risks associated with loaning money to folks with poor credit. Why not? The government was backing them up.
Five years ago President Bush proposed a new agency to oversee Fannie and Freddie. Barney argued it wasn't necessary. He told the New York Times:
"These two entities - Fannie Mae and Freddie Mac - are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."
Frank has received more than $42,000 in campaign contributions from Fannie and Freddie and their employees. This is chump change compared to the almost $2.5 million he's gotten from finance, insurance and real estate interests.
Christopher Dodd (D-CT) runs the Senate banking, housing and urban affairs committee. In that capacity, he also had a large say in writing the bailout package.
The distinguished chairman has distinguished himself in garnering money from Fannie Mae, Freddie Mac and their employees, ranking No. 1 among all members of Congress with over $165,000 in swag. (Barack Obama is No. 2, despite being in Washington for only three years). Other finance, insurance and real estate interests also like Chris a lot; they've kicked in more than $13 million to him.
Like other liberals, Dodd has persistently pushed for mortgages for borderline borrowers. Yet in March, 2007 he told CNN:
"The fact that any reputable banker or lender would make these kinds of loans so widely available to wage-earners, to elderly families on fixed incomes, or to lower-income, unsophisticated borrowers, strikes me as unconscionable and deceptive."
Both Frank and Dodd head the committees responsible for oversight of financial services. Frank's committee, according to its Web page, "oversees all components of the nation's housing and financial services sectors including banking, insurance, real estate, public and assisted housing, and securities."
So Frank and Dodd should have been, as either ranking members or chairmen for the past several years, providing oversight. They didn't. Now they want taxpayers to pick up the tab for their negligence. With the collusion of the Bush administration, they've whipped up a "solution" that costs more than the entire Federal government spent for the year 1981.
Being they scamps they are, Frank and Dodd took the Bush proposal and tailored it to their tastes. One added provision included a slush fund for outfits like ACORN (the Association of Community Organizations for Reform Now). ACORN has been subjected to numerous investigations. It's been implicated in phony voter registration schemes in at least a dozen states. In one incident, the group registered a Mr. Jive Turkey to vote in Ohio, for example.
Barack Obama has legally represented the group. Moreover, he's conducted training sessions for it. His presidential campaign paid over $800,000 to an ACORN subsidiary for "get out the vote" efforts. The final bailout proposal dropped the ACORN giveaway, but the radicals had to love Barney and Chris for trying.
The financial turmoil we're seeing is, some maintain, a failure of free enterprise. The truth is it represents a failure of government. Nationalizing most of the bad mortgages made will just compound the failure.
A free society allows individuals to make their own choices most of the time. The flip side to that is it's their responsibility to accept the consequences of their decisions. A reason there's strong opposition to a bailout is many citizens view it as little more than rewarding wealthy Wall Street interests for poor judgments.
Some borrowers, some lenders and some companies, including government sponsored enterprises such as Fannie Mae and Freddie Mac, made bad decisions. Congress exacerbated the situation. Now Washington wants to spend $700 million – maybe more – for a bailout plan that can't guarantee success and didn't even exist two weeks ago.
Several Republicans in Congress have proposed alternatives. These are based on free market approaches and place taxpayers at much less risk. They deserve thoughtful, deliberate consideration.
Calming the turbulent economic waters is necessary. Looking for solutions from politicians and policies that have already failed us isn't.
This Mike Bates column appeared in the October 2, 2008 Reporter Newspapers.
Get weekly updates about new issues of ESR!