The Bush Administration’s proposed $700 billion Wall Street Bail Out proposal is a collosal mistake for the US economy and the American people no matter what restrictions and limitations Congress is able to impose on a power-hungry Treasury Secretary Henry Paulson.
This “rescue plan” forces taxpayers to reward destructive and negligent business practices and does not address the ruptures in the foundation of the US financial system: deregulation of banks and financial firms, the overturn of the Glass-Steagal Act and a pronounced crony corporate business model which espouses a lack of transparency, limited share-holder input, misleading sales tactics and irresponsible lending.
If Congress actually cared “protecting the taxpayer” then lawmakers would attack the root of the current problem: declining home values and criminal mortgage rates.
Why not use $700 billion dollars to help homeowners keep their homes by purchasing foreclosed homes and offering affordable and reasonable mortgages? It could be a program similar to the Federal Student Loan program which gives millions of Americans the opportunity to pursue a higher education at affordable rates. It doesn’t take a MBA or PHD in economics to figure this out.
A healthy Main Street leads to a healthy Wall Street, but not necessarily the other way around.
Stop the Socialist Spendathon
Try pro-market, pro-growth solutions instead.
By Deroy Murdock
It is beyond irritating to watch President Bush, Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke gift-wrap their $700-billion early Christmas present for financially irresponsible bankers and the overleveraged borrowers who love them. These “three wise men” consider theirs the only method to stop the turmoil roiling trading desks from Gotham to Tokyo.
“Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” Bernanke told the Senate Banking Committee Tuesday.
But this mother of all government interventions is unlike a long, cold hypodermic needle in the belly: an inescapable misery, but preferable to death by rabies. There actually are desirable alternatives to building socialism and saddling every American man, woman, and child with another $2,300 in unjustified federal spending.
One option is to instruct the geniuses from Fannie Mae to Wall Street to deal with it. They made this mess; they should mop it up. Cut back, sell assets, develop fresh services, or get new jobs. Absent a federal bailout, Lehman Brothers sold parts of itself to Barclay’s Bank. Facing Uncle Sam’s cold shoulder, Merrill Lynch ran into the loving arms of Bank of America. Merrill’s customers will survive, and its employees will work for B of A or seek their fortunes elsewhere.
It may take time and tightened belts, but padlocking Washington’s bailout window will offer a generation of “masters of the universe” lessons that America’s Mr. Rogers-in-Chief cannot teach: Keep your winnings, but own your losses. If you fall on your face, especially after dancing drunk on the roof, Uncle Sam may empathize, but he no longer will rush in to swaddle you in silk sheets and place your bruised head on pillows stuffed with crisp $100 bills.
Other options exist, of course — and while they lack the bracing appeal of this sort of financial Darwinism, they remain far more attractive than our current policy of “survival of the fattest.”
Rep. Jeb Hensarling (R., Texas) chairs the Republican Study Committee, the congressional caucus of idea-driven, free-market stalwarts. These practicing Reaganites seem appalled to watch their GOP president morph before their eyes from GWB to LBJ to FDR. At a Capitol Hill press conference at high noon on Tuesday, Hensarling and a dozen RSC members expressed deep misgivings about Bush’s $700-billion baby. Preferring to drown it in the bathwater, Hensarling and his band of true believers rejected Bush’s collectivism and offered their own proposals for escaping this rubble — and returning America to a path of robust growth:
Give the capital-gains tax a two-year vacation. “Suspending capital gains taxes would bring as much as a trillion dollars of capital sitting on the sidelines back into the market,” Hensarling predicts. Also, as the Tax Foundation proposes, cutting America’s 35-percent corporate tax — the industrialized world’s second highest, after Japan’s — would boost U.S. global competitiveness. Since equity prices partially reflect long-term after-tax profits, lowering corporate levies should buoy stock markets.
Denationalize, then privatize Fannie and Freddie. “These troubled financial Frankensteins — created in a government laboratory — are not creatures of the free enterprise system,” Hensarling said. “We must ultimately take their monopoly powers away and return them to the marketplace.” Why not array Fannie’s and Freddie’s loans according to mortgage holders’ surnames? They then could be divided alphabetically into 26 units and auctioned off.
Waive “mark-to-market” accounting. As the Competitive Enterprise Institute’s John Berlau argues, when distressed mortgage-backed securities sell at bargain-basement prices, unhelpful new bookkeeping regulations require that similar instruments elsewhere — including viable loans — be valued at equally low prices. This needlessly stains balance sheets.
Strengthen the dollar. Bernanke should boost U.S. currency, not pose as America’s uber-stock broker. A strong dollar lowers inflation, cheapens oil, and soothes world markets.
Bush’s bailout bonanza began with $29 billion for Bear Sterns. Then came the taxpayer-financed purchase of an 80-percent stake in AIG. And while the public and press gaped open-mouthed at the $700 billion request to rescue the financial-services sector, Washington quietly passed $25 billion to the auto industry. Doubtless, credit-card companies now await their slab of bacon. This cavalcade of giveaways and takeovers monumentally betrays the Republican Party’s most sacred tenets.
Even worse, Bush’s hyper-statism offers nothing imaginative. It takes brains to generate interesting ideas like Hensarling & Co.’s. It takes mere muscle to nationalize companies and toss handfuls of cash into the air. Just ask Eva Peron.
— New York commentator Deroy Murdock is a columnist with the Scripps Howard News Service and a media fellow with the Hoover Institution.
Wall Street’s army of old-white-guys-in-suits seems to be living in a different world than the rest of us. If you watch financial news or read financial newspapers, those hedge fund kingpins and stock speculators are trying to get the message out that the bad days are over and that the good days are right around the corner. They’re trying to tell us that recession fears are a bunch of hog-wash.
The irony is that they are spinning this bull at the same time Warren Buffett, arguably the most successful investor of all time, is saying the exact opposite. Buffett believes that not only are we already in a recession, but we should expect things to get worse.
“… My general feeling is that the recession will be longer and deeper than most people think,” says Buffett.
Maybe Buffett is so level headed and insightful because he doesn’t allow himself to be blinded by his billions and instead lives a humble life devoted to his family in Omaha, NE.
But, it doesn’t take an MBA to see the direction our economy has turned. Gas and food prices are rising and resources are becoming more scarce, the value of our homes is declining, friends and family are losing their homes and jobs and defaulting on debts, incomes are stagnating and inflation is raging: the situation ain’t good.
So, why the common sense-defying, Buffett-denying, sunny forecast from Wall Street?
They may indeed be too blinded by their billions to see what is happening on the street.
But, more likely they are so panicked by the numbers they’re seeing that they are rushing to plug the dike the best way they know how: drumming up business. Who can blame them? They believe the best way to stave off this recession is to buy-buy-buy. But, they know it’s a bear market.
So next time you see a Wall Street insider on television telling you the forecast calls for sunshine, look outside and see the storm clouds gathering. The forecast calls for rain.
A former senior Federal Reserve official, Vincent Reinhart, told The Wall Street Journal that the Fed’s bailout of Bear Stearns is the:
This shouldn’t be shocking. Anyone with a sense of history can predict how this failure of policy is going to produce disastrous results. It was a slap in the face to free markets and takes bad lenders off the hook.
The bankruptcy of Bear Stearns would have been a great lesson for Wall Street. But eventually the Fed’s band-aide will fall off. Unfortunately, the wound is going to be worse.