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

[lisakaz2]

I like you principled approach. I can say that I am leary of this burden shift but I could be convinced of its necessity but only if transparency and accountability went along with any money That's where the power grab occurs here. And DC needs to see itself as part of the problem with all the deregulation mania. The foxes guarded the henhouses and with all the lobbying for more freedom, you moveover got the inmates running the asylum. Don't know which is worse but this is why the GOP cannot be trusted with large sums of money ilke this. They don't govern. They don't know how to govern. Feels like robbery to me.

[JohnBarleycorn]

Barr was one of the prime forces behind the bizarre spectacle that became the Clinton impeachment show trial. Ironic that he would use the North Korean example as a result. This man knows nothing about the economy and little else of any substance. He just reads from the GOP playbook without any real understanding of the mechanisms at play.

The GOP rejected Bob Barr, and so should HuffPo. He doesn't deserve the exposure or the diginity of its readers.

[scottarino]

I could not agree more!

[larry278]

HUFFINGTON POST uses controversial blogs & comments from controvesial people. That is 1 reason that HP is a very popular site. Censorship of any sort is anathema to Ms Huffington, her backers & her employees. Use another site if you want censorship. HP doesn't practice censorship.

[ConCreteHead]

With my sincere respect for Mr. Barr I think this is how the GOVT can fix the problem. It is only considered to be socialized or nationalized when you are not in debt. This is called fixing the crisis while keeping the thieves at bay.

First have the bailout happen under these conditions.

Moratoriums on all foreclosures that fall under the old Fanny and Freddie standard for not being considered a JUMBO loan (geographically this limit will have to be adjusted). All other loans are considered to be case-by-case (these will be the money makers when market turns).

The GOVT & the Courts will determine new interest rates based on geographical economic conditions. This is what will cause trickle-up economics in economically distressed areas.

Rather than satisfying Wall Street, have the GOVT satisfy Main Street by diverting these securities back to local banks or local branch banks that are not allowed to resell or transfer the said asset back to Wall Street. The revenue on these loans are being keep locally and should help grow the local economy. This should be a boost to local industry because so many times a capable workforce is hampered by not having the availability of affordable housing. This gets Wall Street and the Investment Class back where they belong and that is out of housing (bubble has burst) and into new industry start-ups. I think renewable energy should be the key based on our current National Security and failed Foreign Policy.

[tompoe]

Not to muddy the waters too much, but it's important to understand that the Grameen Bank is doing just fine, thank you. You know the Grameen Bank. It's the one whose founder, Professor Yunus, received the Nobel Prize. It's the bank that's founded on the principles of social entrepreneurship. It's the bank that makes a profit for shareholders, but also engages in nonprofit work that contributes to society. It's the bank that embraces the idea that all products sold in the market place can simultaneously contribute to society by helping raise people out of poverty.

It's the bank that demonstrates that entire financial systems operating in a global market place can indeed, do just fine without governments engaging in corporate welfare. America does not believe in corporate welfare. Bush should have understood that when he took office.

[exhale09]

I don't even understand how Bush's clause that gives Paulson a blank check for tax payer dollars, with zero accountability, and zero legal recourse, and zero questions asked could possibly CONSTITUTIONAL?

Am I mistaken or wasn't revolting against TAXATION WITHOUT REPRESENTATION the reason our Democratic Republic was formed in the first place?!

[apduncan1]

Indeed.

I don't grasp the response to everybody about this so called bailout. It is against the Constitution of the USA. Period.

ENRON imploded because it had no assets to support its house of cards; we are facing a similar situation here. Wall Street has built a house of cards (mortgages based securities and other financial 'products') that don't pass the smell test and it is about to fall down.

And one of the architects of this house of cards is Phil Gram, the economic advisor of John McCain. Go figure.

[lanlee]

You are right; however, like any law it can be repealed or invalidated with new law. Hence the little additive about no judicial court or adminstrative agency reviews. It means I can do what I damn well want and you can't say jack squat.

It's a dictatorship in the making - near completion.

It's the same as if you sign over a deed to your house. It doesn't matter what they promised you, what they told you, etc. If you sign it and they change their mind - legally it's theirs to do with as they please. You'd have to take them to court -- oh wait - you wouldn't be able to do that. Another proof that all this is no accident.

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

[WASanford]

With the exception of silliness of blaming all of this on the Community Reinvestment Act, I agree with you. This MOAB (Mother Of All Bailouts) must be stopped. But there is something that you, and all the other posters on this subject for that matter, are leaving out.

If the government doesn't have seven billion dollars in a safe somewhere, then the money will have to be borrowed. That will weaken our dollar; by how much is anyone's guess. And that will cause another round of inflation. I would guess that we’ve had all of the five dollar, or more, a gallon gasoline that we want, but if we allow our “leaders?” to do this MOAB, we’ll have more, a lot more. A trip to the supermarket will even more outrageously expensive than it already is. Not to mention that the cost of everything else, with the exception of our wages, will increase, perhaps disastrously.

Leaving this inconvenient truth out of the conversation is an indication of the moral bankruptcy being displayed by our current leaders. We have to stop this final slap at our country’s middle and working classes and throw these dishonest bums out on their butts in the next election.

Meanwhile please join me in writing, calling, and e-mailing your representatives in Congress. Thank you.

[pandaemonia]

Barney Frank has some nerve given he is dubbed "The Patron Saint of Fannie Mae and Freddie Mac" and there is documentation going back to 2002/3 showing his patronage of these two supposedly private companies. He can be attributed an equal share of the blame for the mess we are in. Equally culpable is Christopher Dodd and a bunch of lesser republicans so it's not a partisan issue although people with more emotion than sense want it to be.

Ordianrily I'd be 100% behind lack of government interference and bailout but as the government, in particular, congressional oversight can shoulder a huge chuk of blame for this crisis, they can damn well help stabilize matters and they need to do it soon. Otherwise the delay will cause so much instability that will create a new set of crises and insolvencies.... if workers can't get paid... all hell will break loose. It's one thing not being able to get a loan, it's another to not be paid for work already performed.

[exhale09]

I feel like Congress has NO choice but to come up with a bailout solution..the alternative could be total economic collaspe which will affect everyday Americans the hardest...wealthy CEO'S will survive this...they may have to give up a yaught and a private jet and a couple of their mansions...but THEY won't be feeding their families dog food to survive...­..BUT...it is CRUCIAL for Congress to have CONTROL and OVERSIGHT...for a CHANGE!

Perhaps if REPUBLICANS would have allowed some oversight in Congress for the last 8 years, and the Bush administration would not have kept this crisis a SECRET from Congress for months, something could have been done sooner to bring this to a halt before it got to this point!

There had better be some investigations and people held to account SOON. Throw the BUMS out...what ever Party they are in....and PRISON would send a clear message to anyone who SCAMED and used corrupt policies that have put our Economic Security in imminent danger.

[polackinidaho]

why do you think bailout would make this situation any better? Crap is crap, however you want to package and perfume it. Artificially inflating the assets of low or no value is the worst possible thing to do in this crisis. You do that, and the world investors will be done with America, the dollar, and the activities of this sorry parody of government.