In the name of restoring economic confidence, the Bush administration is demanding unlimited authority to implement a massive financial bailout. The Secretary of the Treasury would become an economic dictator, empowered to re-engineer the economy as he sees fit. These powers fit Kim Jong-il's North Korea, not the American republic.
The economy is in trouble, but the wrong policy could make things much worse. With the public deeply divided over the proposed bailout, and the future structure of our economy at stake, Congress must stop and take a deep breath before rushing such a far-reaching plan into law.
Rep. Barney Frank, Chairman of the House Financial Services Committee, claimed: "The private sector got us into this mess, the government has to get us out of it." In other words, "Let's just put Sen. John McCain or Sen. Barack Obama in charge and everything will be fine."
This is nonsense. This is irresponsibility of the highest order.
The financial crash is not a "crisis of capitalism." It is the result of foolish federal policies manipulated by private interests -- precisely how Washington always operates. Giving Washington more power is no solution.
The federal government cannot eliminate financial losses and should not attempt to do so. It can only shift the burden -- in this case from irresponsible borrowers, lenders and investors -- to taxpayers. Keeping the walking dead on economic life support will only slow down necessary adjustments. The federal government's principal responsibility at a time of financial stress should be to maintain liquidity for use by otherwise sound institutions.
Congress certainly should reject an unrestricted, economy-wide purchase of mortgages and mortgage-backed securities, as well as "other financial instruments" at the Treasury's discretion. Interest groups already are lining up with their hands outstretched, including mortgage lenders and insurance companies, municipalities and foreign banks. The congressional Democrats even want to include home heating assistance and another wasteful "stimulus" package.
If the administration believes there are financial institutions so critical that their failure would put the entire economy at risk, then the president should identify those institutions and make the case for aiding them to Congress and, more important, to the American people.
In any case, Congress should emphasize accountability. The administration has proposed a bare, two-page law including an extraordinary provision declaring: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
The secretary would be able to decide which assets to buy from whom at what price and in what manner. Both the Republicans and Democrats would benefit from Treasury's unreviewable power to hire consultants and choose firms to implement the bailout. This is a prescription for extravagant waste, incompetence and abuse.
The Bush administration played this game before, using 9/11 to ram the Patriot Act through Congress, and then misused its authority while resisting court oversight. Never again should Congress allow itself to be duped in this way.
Congress must address the causes of the current crisis; most of which stem from government missteps.
Take the Federal Reserve, for example, which has untrammeled discretion--of the sort being sought by Treasury Secretary Henry Paulson--to mismanage the money supply.
The Fed's easy money policy helped create an economic bubble. Everyone from consumers to investment banks over-extended themselves. Prices for commodities, and especially houses, rose dramatically. We must hold the Fed accountable--or even replace it--to ensure sound money that is safe from political manipulation.
Second, Fannie Mae and Freddie Mac were used by Congress to simultaneously expand mortgage lending and enrich politically influential interests. The two entities must be fully privatized, and left with no federal support, guarantees, or dictates.
The Community Reinvestment Act is used to force banks to make bad loans to poor credit-risks in inner-city neighborhoods. Some of the politicians who now denounce "predatory lending" previously attacked those same banks for not lending. The CRA should be repealed.
Finally, expansive but disjointed regulation has failed to deliver transparency, which allows firms and investors alike to know their exposure. In fact, some regulations have been counterproductive.
For instance, the Securities and Exchange Commission enforces "mark to market" accounting rules that requires firms to write down assets--even those held for income rather than trading purposes, to current values. In today's unstable circumstances, one fire sale of an asset of uncertain value can ruin an entire industry's balance sheet. The SEC should suspend the rule's enforcement until accounting agencies and regulators can reevaluate its impact.
"My first instinct was to let the market work, until I realized, while being briefed by the experts, how significant this problem became," lamented President George W. Bush. So, he would turn capitalism into a government-protected enterprise and Uncle Sam into an ATM machine for economic failures. Congress must say, "No." Why should we, the taxpayer, believe the people who got us into this mess when they say bailing them out is the only solution?
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Bob Barr is the Libertarian Party's presidential nominee, and represented the 7th District of Georgia in the U. S. House of Representatives from 1995 to 2003.