The 'Bailout From Hell' Must be Rejected

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?

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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.

Comments

[Carolab]

I don't agree that we should suspend "mark to market". In an economy like this betting on future value is a huge mistake. It's more like "mark to myth" if we suspend Fair Accounting rules. And I don't believe that capitalism has not failed. It HAS failed because of the fact that this is not a free market. It is, as RFK Jr. has said "crony capitalism". I agree that we need to trash the Fed. It is unconstitutional in the first place. A privately held banking concern made us all slaves of a debt-based system.

[WilliePilgrim]

You are right on this, Mr Barr, just as you have been correct on a number of issues since disabusing yourselv of GOP quasi-c0nservative ideology.
It's frustrating to hear not a single peep from our pathetic leadership in calling for accountability from the investors and other enablers who profitted so enormously from this. Will we ever hear a call like that from a leadership who consistently thinks that the only solution rests in the halls of congress despite the evidence that it's quite the opposite?

[ramal]

As Gore Vidal put it so wisely, "What we have in this country is socialism for the wealthy and free enterprise for everyone else." When, oh when are the American Sheeple going to wake up?

[JohnM2]

Mr. Barr,
This was a really good post. I've read a few others you have had and found them interesting as well. While I disagree with you about the Fed going away, I think you are one of the few people who have been able to articulate, in a very public manner, why this crisis started. I'm with you on privitizing (completely!!!) Fannie and Freddie and getting rid of the CRA.
As for the money to pay for this mess, how about we tell all the Congressmen who took political donations from Freddie and Fannie to return that money? And for any money taken by politicians that got routed through a Fannie or Freddie PAC?
The executives at Fannie and Freddie knew precisely what they were doing when they set into motion the plans that have damaged all of us. Let's get that aired out and make those folks household names so we can be wary of them.

[zjr909]

Bob Barr notes that the public is "deeply divided" about this bailout. Yet on Countdown yesterday, Representative Rahm Emmanuel declared that "80% of the people" support this bailout. Of the two, Bob Barr's assessment of public sentiment sounds far more reasonable, and more in line with the few polls that have been done. Yet Emmanuel flat out said that 80% supported the plan. This is what the Democrats do when they're fixing to cave in: they start wildly exaggerating public support. Then they tell us they have no choice: they must go with public opinion and support the plan exactly as it was put before them for fear of angering the electorate, who are now solidly behind it. And now that John McCain's hasty retreat to the Capitol is being touted as a deal-breaker for the deal the Democrats worked out, everything's apparently back to square one, where the original Paulson plan sits like a dung heap that no one wishes to remove. Starting to sound like the fix is in, doesn't it?

[gypsy508]

Rasmussen Reports has only 30% supporting the bailout

[cherokeescot]

WE THE PEOPLE CAMPAIGN

This is a simple demand by the People of the United States of America
to force our government to place their request for us to bail out the ‘ailing financial markets worldwide’ for having made mistakes we were not responsible for and profiting huge by mortgaging our future and our childrens’ future

ON THE BALLOT IN THE PRESIDENTIAL ELECTION, 2008.

If we have to pay back what will ultimately be ONE TRILLION DOLLARS then we demand the right to decide whether or not we are willing to go forward with this debt burden.

The one thing that seems clear is that the political spin on this indebtedness is “The world as we know it will no longer exist if we don’t move ahead (in haste) with this bail out.”

What they don’t want us to know if we don’t agree to this unprecedented debt loaded upon already existing unprecedented debt is that the corn will still come up in Kansas and a lot of rich folks will have to get actual jobs and go to work.

We hereby request any decision made by and for the people be binding on Congress without any of their famous word games or twisting of an honest and truthful decision by the people of the United States of America that would allow our government to override the decision by the people.

Samuel M. Hay, III, A citizen
On behalf of all citizens of the United States of America

[RobinSeattle]

Well, it appears to me that what the Democrats want to try to do (whether they will be successful is another question entirely) is try to gradually manage this thing to lessen the impact on the treasury as much as possible while also attaching some other relevant strings.

I share your doubts Bob. Forcing dumpster loads of moldering speculative financial instruments on the backs of taxpayers is a bit like Bubble Helper, rather distasteful to any thinking person. Part of the problem was that the market, as it is wont to do, finally said "enough" to the irrational exuberance in the real estate sector and that had big ripple effects.

By the same token, there does seem to be a consensus among economists that something must be done to stave off a sudden avalanche of destruction of financial institutions since the psychological effects could lead to further credit restrictions and more economic stagnation.

Ideology doesn't get the job done. Pragmatism does. Thank God that Obama will be president come January and not a clueless ideolgue such as McCain.

[zitlight73]

"if the American people ever allow private banks to control the suuse of our currency, first by inflation then by deflation, the banks and the corporations around the banks will deprive the people of all properity until their children wake up homeless." President Thomas Jefferson in a letter to his Secretary of the Treasury Albert Gallitin. Jefferson saw it coming over two hundred years ago and tried to warn us. I hope that Congress and the President realize that the passage of this plan could very well spark a second civil war because this power grab would condemn this country's people to virtual slavery under the total control of the Treasury Department and their masters the Federal Reserve for generations to come. This is why exactly why our founding fathers put the 2nd Amendment in the Constitution where it is.

[Pdubya]

We have a plutocracy. The presidential race is a charade. These are NWO globalists. I want the U.S. to be a sovereign, liberty promoting nation.

"Allow me to issue and control a nation's money and I care not who writes its laws!". Amshell Rothschild.

Think on that.

[Pdubya]

Dear Mr. Barr:

Thank you for raising the questions. Unfortunately, we are faced with the two presented options:

a. do nothing = severe recession for 1-2 years. painful, necessary to correct mal investments.

b. bailout of any kind = prolonging the inevitable and creating a decade long or longer depression

Why are we not attacking the root cause? ...The Federal Reserve.

We have been so duped into thinking we've had free markets and that we're suffering from the cancer of run-away capitalism. What BOGUS propoganda! We haven't had any form of free markets since 1971.

[anelder]

Tell you what, you and Mr. Barr take a look at what happened in Sweden and then Japan - there was no 1 or 2 yrs. pain. Fact Sweden delayed a bit too long and aggravated and elongated the time they were in deep doodoo.

Does anyone read anymore? Does no one check out the facts?

Barr is hammering the proposal and yet the proposal has been changed to include just those things we are complaining about.

Your banks have begun failing. And Credit has already dried up. Stop thinkling Credit and rich guys. Credits is what every small business relies on. Everyone who want sot buy a car, a house, a college loasn. That goes and the buisnesses it supports begins laying off. Follow the trial Please.

[Pdubya]

Keyesian economics always fail. Look to Hayek and our Constitution and phase out the Fed. But start with Kenny Lay prosecutions and get rid of these crooks. Let the illiquid assets fail, let the recession correct, and let us get back to a production/savings based economy vs. a consumer/debt based economy.

I'm not sure what the breakdown was with you and the NPC conference with the third parties. But, if you do support those four or five principles that were agreed upon, changing our monetary policy (not the mechanics such as are being politicized upon now) is the only way to achieve those goals.

Please, speak out against the Fed. Jim Rogers has. Peter Schiff has. Many Dems and Repubs on the Hill have. Not enough yet. But, the PEOPLE SAY NO, resoundly. The economy is the great political equalizer. This is no time for election pandering. This is our country.

And the two presented candidates will offer nothing to save the value of our dollar. You can not fix a fiat currency with more infusion of fiat currency. Our dollar will fail.

And, if you are to be invited to the debates, please be cordial and professional enough to insist that the other third party candidates are included. The Presidential Commission on Debates should be shut down. The League of Women Voters have this country's best interest at heart.

Respectfully.

[BARRISTER]

"...back to a production/savings based economy...­."??? You kidding? Or are you referencing Chinawhere we have outsourced ALL our "production"??

[ld]

Mr. Barr - You've taken a principled stand, thank-you. I disagree with some of the specifics of your post but I very much respect and agree with your overall position.

I hope you read this comment because I'm worried that (as usual) the Bush interests may be thinking way ahead of the rest of us. I'd like to suggest to you that the Bushies (who do not represent all Republicans) minimally want to handcuff future policy decisions by pouring the treasury into the pockets of their friends. But more importantly, some right wing friends of mine - I'm a lefty myself - think that this may be part of a drive to privatize the treasury. I have to say that privatizing the treasury would be literally the end of the Republic, much as I hate to be alarmist. You are a lot better connected than any of us, so please make everyone aware of what the other motivations behind the current Bush bailout push may be.

[darker]

I CAN'T AFFORD REPUBLICANS ANY MORE! !

NO MORE YEARS to corrupt Republican LIARS.
REPUBLICANS PROVED they cannot govern and they don't want to learn HOW TO.

My vote's for common sense management: Obama-Biden.

[Pdubya]

if any money goes into the system, he will be complicit.

keyesian economics on steroids!

[bigjohnamerican1]

this is not a republican problem or a dem problem this bailout for stupid greedy corporations mostly crooked ceo;s becomes every americans problem.if wealth redistrobution is what our congress is leading us the tax payer into they should take the 85 billion that we bought all of aigs bad investments forand given it to each american over the age of 18 that would be almost 300k per american what would you do . pay off your mortgage, car ,problem solved capitilism works politicians dont

[lanlee]

I find it "interesting" that Oil and Banking are the two 'major' issues of Bush's puppet administration and just also happen to be the Bush family businesses for decades.

Giving The Sec. of the Treasury dictatorial powers during the Bush administration - or any administration for that matter - is like giving an armed robber a gun to hold on you with his other hand.
This is a coincidence -- it's planned. "

btw - just one more reason to long for the 50s when Ike was president and there was hope for the future.

Stay safe my friends. God preserve democracy and freedom for all.

[lanlee]

That should read --- this is not a coincidence -- it's planned.

[SShaw490]

As much as I agree with the economic theories you're presenting, Bob, there's an overriding issue that you didn't address: Basically, Hank Paulson and Ben Bernacke are THE TWO experts on the economy in our government, and they are describing a terrible crisis that requires extraordinary measures. I don't think anyone likes it - least of all me. But a couple of points - first of all, the 700 billion isn't what we are projecting to be spent; that's what the total funding is. I'm hearing estimates of expenditures of around $100 to $150 billion over a four year program. Second, Paulson WANTED dictatorial powers but he's never going to get them. Article 8 in his proposal was an insult to people's intelligence and it's gone. Third, if we can straighten out some of these mortgages that people got into - admittedly without using much common sense - and people can keep their homes and hopefully continue to pay those mortgages rather than have them got down the tubes, we'll all benefit.

The error here isn't the bailout - it's allowing stupid business practices to get us into this fix in the first place. Nobody likes surgery to clear out their arteries after a lifetime of eating ice cream every night, but it beats dying. And hopefully, the patient will only eat ice cream once a week or so after the surgery.

[qh4dotcom]

You got your bailout theory all wrong...th­e current economic crisis was caused by the Fed/government printing too much money and lending it at very low interest rates to financial institutions who did the same to consumers which led to all the malinvestm­ent...the bailout is more of the same...pri­nting $700 billion of new money and keeping the same interest rates.

In your words, the bailout is more ice cream, not surgery.

See below for more details

http://www.campaignforliberty.com/blog/?p=616