Fannie Mae and Freddie Mac do not deserve to be bailed out, but neither do workers, families and businesses deserve to be put through the economic wringer by a collapse of credit markets, such as occurred during the Great Depression of the 1930s.
Neither do the voters deserve to be deceived on the eve of an election by the notion that this is a failure of free markets that should be replaced by political micro-managing.
If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.
It would be better if no such government-supported enterprises had been created in the first place and mortgages were in fact left to the free market. This bailout creates the expectation of future bailouts.
Phasing out Fannie Mae and Freddie Mac would make much more sense than letting politicians play politics with them again, with the risk and expense being again loaded onto the taxpayers.
The financial markets were teetering on the edge of an abyss last week. The secretary of the Treasury was literally on his knees begging the speaker of the House not to sabotage the bailout bill. The crash of falling banks made the earth tremble. The Republican presidential candidate suspended his campaign to deal with the crisis. And amid all this, the Democrats in Congress managed to find time to slip language into the bailout legislation that would provide a dandy little slush fund for ACORN.
ACORN stands for the Association of Community Organizations for Reform Now, a busy hive of left-wing agitation and “direct action” that claims chapters in 50 cities and 100,000 dues-paying members. ACORN is where Sixties leftovers who couldn’t get tenure at universities wound up. That the bill-writing Democrats remembered their pet clients during such an emergency speaks volumes. This attempted gift to ACORN (stripped out of the bill after outraged howls from Republicans) demonstrates how little Democrats understand about what caused the mess we’re in.
ACORN does many things under the umbrella of “community organizing.” They agitate for higher minimum wages, attempt to thwart school reform, try to unionize welfare workers (that is, those welfare recipients who are obliged to work in exchange for benefits) and organize voter registration efforts (always for Democrats, of course). Because they are on the side of righteousness and justice, they aren’t especially fastidious about their methods. In 2006, for example, ACORN registered 1,800 new voters in Washington. The only trouble was, with the exception of six, all of the names submitted were fake
Superficially, both parties are to blame: 133 Republicans and 95 Democrats voted against, large numbers in both caucuses. But a majority of Democrats voted in favor.
Republicans said a harshly partisan speech by Nancy Pelosi turned off about a dozen Republicans who were set to support the legislation. That prompted a devastating rejoinder from Democratic Rep. Barney Frank — they voted to tank the economy because their feelings were hurt?
The simplest explanation for the defeat: The public opposed the bill, and all the intensity was against it. Congressional staffers couldn’t pick up the phone without getting harangued by angry constituents. Everyone suffered from taser-level sticker shock from the $700 billion price tag.
Treasury Secretary Hank Paulson was caught between two different audiences. He needed the $700 billion figure to reassure Wall Street he’d have a big bazooka to deal with the crisis, though it’s unlikely he’d ever spend that full amount. But it alienated the very people he needed to pass the bill.
Meanwhile, Paulson and Federal Reserve Chairman Ben Bernanke were underwhelming in congressional testimony last week when explaining how the program would work — basically saying “trust us.”
In the end, Lincoln was proved right again: “With public sentiment, nothing can fail; without it, nothing can succeed.”
A number of Republican House members and staff, along with others who are plugged in, are telling me that Nancy Pelosi and the Democrats will come back with a new bill that includes all the left-wing stuff that was scrubbed from the bill that was defeated today in the House.
As this scenario goes, the House Democrats need 218 votes, and they have to pick up a number of black and Hispanic House members who jumped ship because the Wall Street provisions, in their view, were too benign. So things like the bankruptcy judges setting mortgage terms and rates, the ACORN slush-fund spending, the union proxy for corporate boards, stricter limits on executive compensation, and much larger equity ownership of selling banks through warrants will all find itself back in the new bill. Of course, this scenario will lose more Republican votes. But insiders tell me President Bush will take Secretary Paulson’s advice and sign that kind of legislation.
Personally, if this scenario plays out, I would probably withdraw my support for the rescue mission and switch to plan B, which would center on the FDIC and its bank-recapitalization powers. The bank-ownership issue, in particular, could lead to heavy nationalization of America’s financial system with a three-house Democratic sweep in November.
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This post was written by bobsikes on September 30, 2008
