Saturday, September 27, 2008

Congress Should Pass the Palson Plan

It is with reluctance that I conclude Congress must past the amended version of the Palson Plan. I would prefer the House Republican Plan, if I thought it would work. Unfortunately, from what I have read, I don't think the House Plan would be sufficient, and the stakes are too high to gamble. I hate the thought of the federal government taking on a $700 billion dollar obligation and buying all of the bad mortgage loans that should never have been made in the first place; however, I think it is necessary.

I know some free market purists are advocating letting the companies that made these bad loans and the investors that purchased this bad debt fail and let the chips fall where they may. I understand the argument. I understand the dogma. Now is the time, however, for pragmatic solutions that will get us out of this crisis. It is great to have guiding principles, but you shouldn’t let them guide you over a cliff.

I also understand those who don’t like the idea of bailing out rich, fat cats while letting homeowners get foreclosed and neglecting other unmet needs. Yesterday I was in a chat group and someone wrote, “Isn't it funny how they can find $700 billion for this, yet they can't come up with enough money to get us health insurance? Man, I wish I was rich enough to get bailed out by the government when I couldn't pay my bills.” I understand the sentiment, but resentment is no substitute for sound policy.

This bailout is not just for Wall Street. If an economic meltdown is not avoided, everyone will surfer. Senator Bob Corker made this point in an article appearing in today’s’ Tennnessean:

There is a record shortage of credit in our nation's economy and the situation is growing worse by the day. If the credit markets continue to deteriorate, and credit provided by our country's banks and lenders is no longer available, businesses will no longer be able to secure short-term loans, forcing them to lay off workers because they can't meet payroll. It will become impossible for individuals to secure car loans or mortgages — leading to more foreclosures, pressure on housing prices, and a worsening of the credit crunch. In a worst-case scenario, credit cards may no longer function and the ability to even cash a paycheck may no longer exist. This is how a financial crisis becomes an economic calamity that will have an effect on every American and Tennessean.
(Read more)

I understand that those on the left are going to blame this crisis on Republicans and deregulation and a failure of free enterprise. They are going to use it for political advantage and blame it on the “failed policy of the last eight years of Bush and McCain.” They will try to use this as an excuse for greater government interventions, and to achieve social goals of income redistribution. By agreeing to the bailout, we are not acquiescing in the analysis of what caused the problem. As Tennessee’s senior senator, Lamar Alexander, has said, “fix the problem and next week we can fix the blame.”

I am appalled that Democrats have tried to use this crisis as a means of permanently funding the liberal activist organization ACORN. I assume there are enough pragmatic Democrats who will put country above party and that provision will be stripped from the bill. I would not support the bailout if the ACORN provision is in it, and unless the taxpayer protections, as stated in Lamar Alexander’s article below, are included. If those changes are in the final version, then I think the plan should be adopted. If I were in Congress, based on what I know now, I would have to hold my nose and vote for the bailout.

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  1. DEMs can't get away with blaming GOP for the CRISIS. CARTER started the Fannie Freddie problem...Clinton launched the sub-prime lending program in 1999 brokered by D-Chris Dodd. Republicans led by DOLE and co-sponsor John McCain proposed in 2005 the FED HOUSING REGULATORY REFORM ACT to reel in Fannie & Freddie, sub-prime lending excesses. Alan Greenspan, Clinton Treasury Secretary warned in 2000 that Fannie & Freddie excesses could cripple the mortgage industry and the economy as a whole. McCain warned of the same result in 2005 in his comments attached to the FED REG/REFORM ACT.

    There is no doubt what so ever....


  2. The thing is, who is going to bail out the federal government?

  3. .
    It’s a shame politicians forced banks starting back in the 80s to give home mortgages to poor people who weren’t credit worthy enough. Then, they just started lending mortgages way beyond many people's credit abilities. That’s where all this mess started. And also that they didn’t regulate Fannie Mae and Freddie Mac like they do other banks.

    Alan Greenspan should be exposed for the problems he helped cause by allowing credit quality to be ignored.
    Scary, will sanity ever prevail?
    if money were free
    it would have no value
    - extreme inflation

    ignore credit scores
    give everyone homes
    - like musical chairs

    to deny a mortgage
    must be due to racism

    absurd thought -
    God of the Universe says
    forgive all debts

    settle all accounts
    no one owes anything

    absurd thought -
    God of the Universe says
    make housing costs look cheap

    go paint a rosy picture
    just get people to sign up

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  4. The farther away from the intersection of Wall and Nassau street the more unnecessary Treasury's plan looks. But that distance only fogs the vision of a banking system ready to fail, with massive implications for our nation.

    I wrote about it here:

    Lets hope that by Thursday Congress will finally do the right thing and we will never have to find out if I, and ever other finance executive in New York are right about the depths of this crisis.


  5. The current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

    NO Bailout of wall street! NO transfer of debt to main street! NO Bailout!

    What we really need is getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending. Central banks and governments cannot transform unprofitable investments into profitable ones. They cannot force institutions to increase lending when they are so exposed. This is why calls for throwing more money at the problem are so totally misguided.