More On The Bailout

More On The Bailout

Adam Graham makes the case that Bill Sali (R-ID) and his unwillingness to support the bailout isn't just ideological, but sensible as well:

I actually didn’t think the AIG bail out was that bad. After all, AIG was being loaned money at an extremely high 11% interest rate. The idea of buying out all these mortgages under the terms of the proposed bail out, however, makes me queasy. Consider:

1. The Treasury Secretary is given $700 billion, no questions asked and no strings attached, to purchase mortgage securities. This isn’t like a Resolution Trust Corporation situation where these are purchased for Pennies on the dollar and sold at a profit. Instead, Paul Krugman points out, under the Carte Blanche terms of the proposal, it’s very well possible that we could end up paying a premium price for bad debts. Yes, I’m taking Paul Krugman seriously and even agreeing with him on this issue. No, pigs are not flying.
2. But what could be better than $700 billion bail out? How about a $700 bail out where the disbursement of the money is at the total discretion of the Secretary of the Treasury and subject to no review by any agency or the courts?
3. What could be better than a $700 billion bail out with no possibility of review by any federal agency or by the courts? How about if that bail also includes buying out bad mortgage debt from foreign banks? Why can’t their governments handle them? Or better yet, as the collapse of the U.S. Financial system would lead to global misery, why not shake down a few hundred billion dollars from foreign governments?
4. The bail out, as proposed, only encourages more bad behavior. Shielding companies from the effects of poor economic decisions with no repercussions encourages more bad decision making with the hope or more bailouts. At least AIG had some repercussions: An absurd interest rate on their loan and probable loss of dividends until this mess is cleaned up. The plan that’s coming from the White House gives companies no disincentive to avoid needing a future bail out.

A really nice editorial from the September 22, 2008 Investors Business Daily on the origins of the problem:

Barack Obama has repeatedly blasted "Bush-McCain" economic policies as the cause, as if the two were joined at the hip.

Funny, because over the past 8 years, those who tried to fix Fannie Mae and Freddie Mac — the trigger for today's widespread global financial meltdown — were stymied repeatedly by congressional Democrats.

This wasn't an accident. Though some key Republicans deserve blame as well, it was a concerted Democratic effort that made reform of Fannie and Freddie impossible.

The reason for this is simple: Fannie and Freddie became massive providers both of reliable votes among grateful low-income homeowners, and of massive giving to the Democratic Party by grateful investment bankers, both at the two government-sponsored enterprises and on Wall Street.

The result: A huge taxpayer rescue that at last estimate is approaching $700 billion but may go even higher.