Duncan Column on the Financial Bailout
Reprinted from the Shopper News Now
October 20, 2008
I want to explain why I voted against the Treasury Department’s bailout plan. There really was no good choice. It was going to be bad if we passed it and bad if we did not, but I thought it would be better in the long run not to adopt the socialist approach.
Also, I was bothered by the unfairness of it all. Every year, even in good times, thousands of small businesses go under and are not bailed out by the federal government. It just did not seem right to do this primarily because some companies had acted in a fiscally-reckless manner and had supposedly become “too big to fail.”
The final bill was changed by adding some things that were good and some that were bad. It had an AMT fix and a sales tax deduction provision that I have always supported. It had a bad mental health provision which will drive up the cost of medical insurance nationwide and some ridiculous tax “sweeteners” designed to get votes.
But there were many other reasons I voted the way I did, including, but not limited to the following:
First, it was enacted too close in time to several major and unprecedented actions already taken by the Federal Reserve on Bear Stearns, Fannie Mae, Freddie Mac, AIG, and the private but rapid purchases of Lehman Brothers and Washington Mutual and pending sale of Wachovia.
In addition, Warren Buffett invested five billion in Goldman Sachs which, according to CNN, had many billions invested in AIG. Thus Mr. Buffett’s strong support for this bailout obviously comes with a big conflict of interest.
The market is already responding quickly to these events, as has the Fed, and I felt we should take a little more time to assess the impact of major actions already taken.
Second, 200 academic economists who did not work for companies which stood to benefit opposed the plan. Greg Mankiw, a Harvard University economist, wrote: “…One has to be at least a bit skeptical about the idea that government policymakers gambling with other people’s money are better at judging the value of complex financial instruments than are private investors gambling with their own.”
Third, I attended a small breakfast meeting with Stephen Moore, the lead editorial writer for the Wall Street Journal, who reminded us that in 1987, there was a one-day 15% drop in the stock market. This would be equivalent to a 1600 point drop today.
He said everyone panicked and President Reagan was urged by all his top advisors to enter into a bad deal with Congressional Democrats. He refused and the market recovered in six days.
I believe the problems today are more serious. Like a drug addiction, the solution is not a short-term fix that will set a very bad precedent and hurt us badly a few years from now.
Also, the solution is not in raising our national debt by hundreds of billions as this legislation requires. We had already raised the debt limit to $10.6 trillion in the recent housing bill. In my opinion, it is terrible to keep putting so much off on our children and grandchildren just so Congress can continue on its merry big-spending ways.
Fourth, in addition to all the recent actions to stabilize the financial markets mentioned above, the Congress passed two housing bills totaling $315 billion in the summer. We should wait to see what effect those laws have. I opposed those bills too but if they will do what their supporters claimed, that is another action that makes this bailout unnecessary.
Fifth, the Resolution Trust Corporation of the 1980s did ultimately resolve the savings and loan failures, but it did so with all sorts of whopping insider sweetheart deals and people charging fees as high as $850 an hour. I have no faith in the federal government running this bailout without similar sweetheart deals and wildly excessive fees.
Sixth, almost everyone who has contacted me about this – over 3,000 so far – has been strongly opposed. I do not have all the knowledge and listen very closely to the people I represent. I have always tried to reflect the views of my constituents as much as possible unless I felt very strongly that it would be harmful to our Nation. In this instance, I do not feel that way.
Finally, and most importantly, I thought the best summary of this whole situation was sent to every Member of Congress by John Allison, Chairman and CEO of BB&T, a major bank that did not get into the subprime mortgage mess. He made 14 brief points, four of which are as follows (Quoting Mr. Allison):
1) “There is no panic on Main Street and in sound financial institutions. The problems are high-risk financial institutions and on Wall Street.”
2) “Corrections are not all bad. The market correction process eliminates irrational competitors. There were a number of poorly managed institutions. It is extremely important that the bailout not damage well run companies.”
3) “A significant and immediate tax credit for purchasing homes would be a far less expensive and more effective cure for the mortgage market and financial system than the proposed “rescue” plan.”
4) “It is extremely unclear how the government will price the problem of real estate assets. Priced too low, the real estate markets will be worse off than if the bailout did not exist. Priced too high, the taxpayers will take huge losses. Without a market price, how can you rationally determine value?”
There really was no good choice in this situation. Conservatives in the House made the bill much better by demanding more taxpayer protections and not giving all the power to just one man – the Secretary of the Treasury. But, in the end, it was a bill which put off meaningful reforms and required the expenditure of money we did not have, raising our national debt by $700 billion, to $11.3 trillion. I cannot support such fiscally – irresponsible legislation, even if it means some temporary problems on Wall Street.
