Conservative Response to Bailout
Written by Mike on September 25th, 2008I have been clicking madly around the internet looking to read as many opinions from intelligent conservatives as I could to better understand the terms of this bailout the president, the bulk of the MSM, congress, both presidential candidates, the Fed Chairman and Treasury Secretary seemed determined to push through ASAP.
Here is a collection of some thoughtful conservatives who have responded to the calls for more socialism.
John Hood writing in the Corner:
As others here have said, while critics of the Paulson Plan — as well as any scary leftist mutation of it — are abundant and proliferated, few seem to be arguing for federal inaction. They do believe that timely and significant federal action is needed. They just don’t like the specifics or the precedent proposed by the administration.
This should not be interpreted, or pitched, as a “rejection of market ideology.” I cringe every time I see conservatives seek street cred with clueless but exultant journalists by dutifully admitting that the country or the economy “trumps” their supposed market ideology. Whether intentionally or not, these politicians and commentators are making a horrid situation even worse. Make no mistake: this moment isn’t just fraught with economic peril. It has the potential to be an inflection point in American political history, the beginning of a new and painful bear market for liberty.
Blackhedd writing at Redstate:
I’ve been trying to get some sense for how Paulson and Bernanke are seeing this, for days now. Yesterday in open Congressional testimony, Bernanke finally spilled it: the purchases are to take place at “a price close to the hold-to-maturity price.”
I’ll say it straight out: that would be far higher than the current market for these securities. The Troubled Asset Relief Plan is a bailout of Wall Street, at taxpayer expense. Pure and simple.
This puts everyone in a very difficult position, for two reasons: First, it’s morally wrong and politically a disaster. Second, it represents a misallocation of resources that can only hurt the economy later.
Pejman Yousefzadeh, also writing at Redstate supports and expounds upon an alternative plan:
It does not have to be this way. There are ways to help the economy quickly and maintain our free market credentials in the process. To be sure, they involve TAX CUTS–those supposedly horrid things that we supposedly ought to be wary of, but which, in fact, actually work in stimulating the economy and helping companies big and small maintain healthy balance sheets. I would say, however, that tax cuts that work in stimulating the economy and help bring about healthy balance sheets are infinitely preferable to socializing the economy and landing vicious body blows on the philosophy of free markets.
Via The Club for Growth, Robert Higgs says that the credit markets are NOT frozen, despite what you may have read:
Although certain financial institutions are undeniably in deep trouble–difficulties of their own making, we might add–the problems in particular financial circles should be kept in perspective. Note especially that credit markets in general have NOT ceased to operate. Moreover, lenders are extending credit in historically great amounts. To see this reality, however, we must break away from anecdotes in the financial press, which is eager to attract readers, and from fear-mongering by the political class, which is eager to seize more power, and examine the data that describe wider market transactions. For this purpose, the St. Louis Fed’s Web site is a useful resource.
Some good evidence, besides what he offers in his own post was Caterpillar’s $1.3 billion debt sale of 5 and 10 year bonds at only 320 or so basis points above 5 and 10 year treasuries. Not ideal, but far from frozen. Still, some disagree and are voicing their concerns loudly.
Meanwhile the Wall Street Journal has some harsh words for both presidential candidates and their lack of leadership on this issue.
As candidates, however, they are not serving the public by hiding behind a fog of faux bipartisanship that obscures their core economic principles and their approach to governance in times of crisis. Far from being an issue that is above electoral politics, the financial panic is too serious not to have a serious discussion about. President Bush gave both candidates a hand last night by inviting them to a White House meeting on the legislation today, but this looks more like political theater than it does actual governing. Both candidates are angling to get some credit for being in on the deal, whatever it might be.
Rumors are swirling of course that the deal is dead, no one knows if this is true or not. Nor does anyone know what the consequences would be financially if no action is taken at all.
25
PM
You forgot about Sen. Jim DeMint’s alternative plan. Here’s the text from an email I received from his people today:
“The proposed bailout is a trillion dollar band-aid that does not contain a single item that will stimulate our economy,” said Senator DeMint. “Now is the time to cut taxes on American investment, reform government failures, and expedite energy exploration so we can grow our economy. We must enact pro-growth economic solutions that will create jobs, open up our vast energy resources, encourage investment, and pave the way for long-term prosperity. Instead of giving government more power after its past failures, this plan provides our economy the tools it needs to work through this crisis and gives Americans the freedom to succeed. Given the serious problems we now face, we should all agree that a bold pro-growth economic plan is urgently needed with or without a bailout.”
REFORM A TAX CODE THAT DISCOURAGES CAPITAL FORMATION
• Suspend Capital Gains Tax for 2 Years, Index it for Inflation: Immediately suspend the capital gains rate from 15% for individuals and 35% for corporations on assets, including stocks, homes, and commercial real estate investments. This provision would unleash funds and materials to create jobs and grow the economy. After the two-year suspension, capital gains rates would return to present levels but assets would be indexed permanently for any inflationary gains.
• Reduce the Corporate Income Tax Rate: Reduce the corporate income tax rate, which discourages job creation and investment in the U.S., from 35% to 25%. For over a decade, the U.S. corporate tax rate has been 50% higher than the average among our counterparts in the industrialized world and nine key trading partners cut their rates during 2007. According to the Tax Foundation, the corporate tax quietly taps family pocketbooks for nearly $370 billion per year, over $3,000 per household, in the form of higher prices, lower wages and poorer return on investment.
REFORM FAILED GOVERNMENT REGULATION
• Suspend “Mark to Market” Accounting: Suspend the mark-to-market regulatory rules for long-term assets. These rules require financial firms to mark assets at current market levels, even where no market exists and any immediate transactions would result in fire-sale prices. Instead of allowing firms to mark these assets to their true economic value, these rules contribute to a downward spiral as firms have to evaluate their assets not on the basis of their long-term investment but rather on a short-term panic.
• Reform Section 404 of Sarbanes-Oxley: Make voluntary the duplicative reporting requirements under Section 404 of the Sarbanes-Oxley Act, allowing companies to comply with standards that better fit their size while still insuring that they protect their investors. The average compliance cost for a business under Section 404 is $3.8 million, with smaller businesses paying over twice as much in percentage of revenue as large businesses. Relieving this burden will reverse a policy that is chasing capital offshore and encourage more companies to go public in the United States.
• Repeal federal mandates for risky loans: Repeal the Carter-era Community Reinvestment Act, which requires banks to make loans available to borrowers who would otherwise be deemed as too high a credit risk, and who often cannot afford to repay the loans. Under this law that contributed to our current crisis, if banks don’t make enough risky loans, community organizers can take financial institutions hostage during regulatory proceedings when banks try to merge, acquire or otherwise alter their status.
EXPAND ENERGY EXPLORATION
• Repeal Bans on Energy Exploration and Expedite Production: Expedite offshore and oil shale exploration, ensure states share in energy revenues, and prevent endless litigation from frivolous environmental lawsuits. American reserves offshore are estimated to hold over 20 billion barrels of oil and 97 trillion cubic feet of natural gas. In the West, oil shale is estimated to be between 800 billion and 2 trillion barrels of oil — that is more than three times the proven oil reserves in Saudi Arabia alone. Permanently ending these bans on American energy will help fuel our economy and stop sending billions of dollars overseas for foreign oil.
REFORM FAILED GOVERNMENT INSTITUTIONS
• Schedule the GSEs for Privatization: Transition Fannie Mae and Freddie Mac over a reasonable time period to truly private companies without special government privileges and expose them to real market competition. This reform would 1) establish commonsense limits for their capital requirements and portfolio holdings relative to their size, 2) focus their mission on affordable housing only, not profit making, 3) require them to pay an appropriate risk-based amount for the government guarantee they enjoy, 4) subject them to state and local taxes and accurate SEC filings like every other private for-profit corporation, and 5) ultimately provide for the phase out of their GSE charters once their conservatorship has ended.
• Stabilize the Dollar: Repeal the Humphrey-Hawkins Full Employment Act, which diverts the Federal Reserve’s attention from long-term price stability to short-term economic growth. In an effort to fuel the economy, this additional mandate has encouraged the Fed to keep rates artificially low, leading to economic booms and busts, a rise in inflation and the decline of the dollar. This reform would require the Fed to establish a numerical definition for price stability and maintain a policy that promotes it over the long-term.
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PM
Well I think Jim DeMint and a few others in the Senate are working closely with Jeb Hensarling in the House to block this action. Last I heard Richard Shelby is going to join them, as the ranking member of the Senate banking committee that would be huge. I have heard that 40 of 49 republicans will support the bill as it stands now in the Senate.
26
AM
If Politics1.com is correct, McCain’s been working with the House GOPers on an alternative proposal to the bailout plan. Let’s hope some of these reforms make there way into a Republican alternative.