Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.
It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that America is much less likely to turn into France, Venezuela, or the old Soviet Union, as this bailout/nationalization package would have set us on the road to becoming.
Several great speeches on the Right and Left were given. Democrats Brad Sherman of California and Earl Blumenauer of Oregon gave powerful speeches against corporate giveaways. And conservative leaders of the Republican Study Committee — such as Jeb Hensarling, Jeff Flake, Mike Pence, and of course Ron Paul — spoke about how government intervention was largely the cause of this predicament, but the bailout would doom arguments for the free market form here on out. The idea of the government making this kind of outlay to high-flying risk takers just didn’t jibe with members, and certainly not with the American people.
And some smart folks were coming to the realization that in addition to the $700 billion price tag, the bailout could actually make economic problems worse. The market’s sudden rise after the bill’s defeat, as Cord Blomquist notes, shows that uncertainty (including fears about the destructive provision in the bailout bill) was in large part responsible for the market’s volatility. As I wrote in today’s American Spectator, the bill could have caused rampant inflation and worsened the mark-to-market accounting problems by forcing banks to “write down” their assets to the price the government pays for similar assets. Thus, the bill could have spread the credit constraint contagion even further, and the market was rightly concerned.
And speaking of mark-to-market, this accounting issue once considered to be obscure played a prominent role in the House floor debate. Louie Gohmert (R-Texas), Darrell Issa (R-Calif.) and Jeff Fortenberry (R-Neb.) all correctly noted that if Treasury Secretary Hank Paulson and regulators would simply let these securities be valued at the price Paulson wanted the government to pay for them — instead of the last fire sale price per mark-to-market rules — it would largely do what the bailout intends without putting taxpayers on the line.
Even proponents of the bailout, such as Gary Miller (R-Calif.), called for mark-to-market reform. And to top it off, House Financial Services Committee Chairman Barney Frank, said he was sympathetic to responsible community banks dealing with the accounting issue, but said Congress shouldn’t legislate accounting standards. But Congress has a responsibiliy to legislate, because accounting standards have the force of law when, like mark-to-market, they are enforced by the SEC and banking agencies.
CEI will continue education on the real Big Government causes of the financial crisis and real solutions like reforming accounting rules, the credit rating state-enforced duopoly, and the big enchiladas of Fannie Mae and Freddie Mac.