Economy & Budget

Is This What We Want?

On Friday, September 19, rank and file Republican members of Congress were notified of a conference call that would include Treasury Secretary Henry Paulson, and Fed Chairman Ben Bernanke. I would never disclose confidences, but it is quite public now that we were told an economic disaster was about to take this country that could be worse than the crash of 1929.

Now, that’s a real attention-getter. It sure got mine.

My years as a judge force me to demand factual evidence to support expert opinions. The factual evidence was then and is now less than satisfactory. Yes, credit was becoming a real problem. Yes, there were major banks in trouble, but those were investment bankers, not the bedrock community bankers who for the most part have done fairly well since the 1980′s about having better security for their loans. (It is also public record that I did outside counsel work back in the 80′s for both the FDIC and the RTC, so I was familiar with problems then, and telltale signs of problems now.)

It was clear to Secretary Paulson that something had to be done immediately so that we could pass it on Monday or Tuesday at the latest to inject $700 billion into the banking system. That would be done by having the federal government purchase mortgage backed securities from the ailing big-boy-banks.

Despite Republicans’ losses in 2006, the core of a staunchly conservative House remained fairly intact. The Republican Study Committee remained at the heart of that core with an even stronger heartbeat. Our group was taken aback by Secretary Paulson and Chairman Bernanke’s pronouncement of impending doom and that there was no cure like a federal cure.

I’ve not been in Washington all that long but one adage I’ve learned is that, “No matter how cynical you get, it is never enough to catch up.”

We were and are incredulous. How could this happen? Where were the safeguards? Why did no one in authority see this coming? The Secretary and Chairman had about 45 minutes to share with us, but there were so many in the queue that we continued the conversation even after they left for another 45 minutes. The rank and file were not going to be forced into the biggest move to socialism in US economic history without some substantial proof of the necessity. We did not want to see economic devastation in America. But many of us — then and many times since — asked that we be given more to go on.

Obviously, Republicans did not bite and swallow that whole load by Monday the 22nd, but there were lots of phone lines buzzing and emails racing across America by then.

Monday came and went without the financial earthquake, but there were meetings, discussions, arguments. The Republican House and Senate leaders were on record as saying basically, we were going to have to bite the bullet and just do it to save the country. The House Republican masses were not convinced. The great thing about John Boehner is that he does listen. When there was massive unrest nearing revolt, he got the message and became a good messenger.

That Monday, I heard that Democrats were meeting at 2 pm and open to Republicans attending who did not like the Treasury’s proposal. I went. It was a bit surreal, but as a staunch conservative I was sharing dismay and disdain with people like Brad Sherman, Lloyd Doggett, Rush Holt, Bobby Scott, who for some reason are fairly skeptical of most anything the Administration proposes. We actually agreed on something: that one really shouldn’t just come in and demand $700 billion to throw at a problem when, for all we knew, the recipient Treasury Department may have had some culpability in creating the problem.

We had an emergency RSC meeting at 5:30 pm before first votes of the week at 6:30. We were of one accord. We wanted to see that free market approaches were tried, that some appropriate oversight be imposed. This terrible crisis could also be an incredible opportunity to show the world that entrepreneurial capitalism, properly pursued, could be the greatest solution to the worst economic problem. Yet, here, our own administration’s Treasury Secretary was pushing us to have the federal government go into business as the biggest asset management firm in America. Why?

As the great Robert Novak reported in October 2007, “…the former Goldman Sachs CEO does not act or sound much like a conservative Republican to the GOP remnant at the Treasury. “It’s not in Hank Paulson’s DNA,” one official told me. Is he loyal to Bush? “Hank is for Hank,” he replied.”

Secretary Paulson had said that it might take 10-20 years to hold the assets before they achieved their appropriate value. Only the federal government had the patience, America was told, to manage these assets correctly! The federal government can’t even keep the same tax incentives in place for 2 years in a row. Congress often changes its mind and so do administrations. Why should we believe this is going to work?

Our Monday night bipartisan Prayer Caucus kicked in overdrive to pray for wisdom and protection for the country. Tuesday, brought another Republican Conference, but this time with the Vice-President and some reinforcements to peddle the bigger government concept.

The administration tells us that the government is going to make money for the taxpayers on this deal. Really? I think, by most measures, that is called socialism. It has failed every time it has been tried. Capitalism fails when it evolves toward socialism. I would defy anyone to show me a financial deal in which the federal government bought property cheaper from a ready willing and able seller or sold property for more than a ready, willing and able seller could have than a private entity.

Any time the government says it is going to make you money with your tax money, then it has decided to compete with businesses.

In the former Soviet Union, all money was supposed to go to the government and all were supposed to get their checks from the government. That always fails. It did for the New Testament church until Paul said if you don’t work, you don’t eat. It also failed for the Pilgrims who finally had to issue the same order to keep from starving.

Many have demanded to know why the Treasury did not see this coming. The answer: we DID see it coming for over a year. We have been working on this solution all this time. Now, that to me is as scary as the threatened problem!

They had a year to work on it and this is the best they can do?

It is true that as major investment banks go down, all those who have their stock and have invested in them get hurt. But, when we were told early last week that if we did not act immediately, the big banks would fail followed by the rest of the country and it would be disastrous. I am at least glad at that this weekend they have downgraded the financial hurricane from a “Category 5” catastrophe to a tropical storm recession if we don’t act.

When we were told “depression”, many of us wanted to know who would fail. We were told they were household name banks. Give us a name. Ok, Washington Mutual and when the first one goes, it will be too late. The dominoes would begin to fall and it would be too late to save anything. The Titanic would be sinking and couldn’t be salvaged.

Well, guess what? Washington Mutual failed Thursday night, and people who had accounts there now have JP Morgan as their named bank. The stock market noticed, but life still went on Friday. The result was not quite as cataclysmic as we were first told.

The judge in me likes to know who the witness’s friends are to help judge credibility. Yes, they would be those investment bankers whose stock will be $0 if the US doesn’t pay them billions for their valued down MBS’s but will still be the elite of New York if we do.

And there are some problems within the problem that no one seems to be discussing. For example, remember the public clamor over Bank of America doing commercials in Spanish and seeming to invite illegal aliens to come let them help give accounts or loans? Well, there are reportedly lots of illegal alien mortgages in the mix, but no one seems able to say quite how many.

Some of the potential House Republican solutions proposed to help deal with the credit crisis included:

• providing government-backed insurance to cover the mortgage-based securities to give comfort to potential buyers in the private sector;
• eliminating any capital gains tax or income tax on any income derived from those purchased assets;
• We had also been advised that there may be hundreds of billions of American owned dollars in foreign banks. We would offer “repatriation” incentives to bring that money into the U.S. to buy the ailing MBS’s because there would be no tax, no fines, no penalties on any of that repatriated money if it was used to buy those assets; and
• We also would open the OCS and ANWR immediately to leasing which would produce billions in lease payments and bonuses that could be pay-for with cash now, and not taxpayers’ cash, not our great, great grandchildren’s cash either.

In addition, some of us proposed to allow people to use Net Operating Losses (NOL) clear back ten years to jump start building and buying to ease the economy forward. Conservative, free market thinkers would have been so proud to know of all the suggestions that were put out on the table. Mainly they were great suggestions because they came from outside Congress as we talked to people outside the beltway and outside Wall Street.

If Speaker Pelosi gets 100 Republicans to vote for this (which as of this writing is supposed to happen today), then that allows the Democrats 60 vulnerable Members with lots of other Democrats who wish to vote against it and they will be able to survive in November. The Democratic voters will be quite forgiving, if there is even anything to forgive, for expanding government in such vast extremes.

Republican voters will not forgive. They will hold it against most all of the 100 and throw them out this year or in the next election figuring even a Democrat will not do that to them again. It is a brilliant political move for the Democrats. They don’t need political cover, but, hey, the Republicans seemed to buy it so why shouldn’t the Democrats use it?

After the meeting in the White House with the Presidential candidates, it was reported falsely that there was — before the meeting — a basic deal. Those reports were obviously contrived so the Democrats could say Sen. John McCain blew it up by coming back. There was no deal. The reports of the early deal were just as truthful as when Rep. Barnie Frank said a few years ago that Fannie Mae and Freddie Mac were solid and we didn’t need reforms nor did we need to worry. He was wrong then too.

What was not initially reported is that everyone spoke at the meeting. When it was McCain’s turn last, everyone anticipated him reaching across the aisle so he could claim he was a peace-maker and got a deal, no matter how bad it was for conservatives or American in general.

All the reports I heard said that the meeting broke down with loud yelling and that McCain never really said much during the whole meeting. That is true, but what he did say was that the “…House Republicans are right on this one.”

All heck broke loose! The Democrats expected him to be political; not principled. How could he disappoint them? But McCain did disappoint: the Democrats, not the Republicans.

OK, I haven’t really discussed the President’s role in all of this. Understand: he is very smart; one of the wittiest, most likeable people you could ever be around. He suffers from a couple of problems. One is that he speaks like a Texan and, as Jeff Foxworthy says, “When people hear you have a southern accent, they immediately deduct 50 IQ points from how smart they think you are.”

President Bush just believes his friends would not ever manipulate him (at least he doesn’t until they write a book and prove that they would and did.) He believes what Sec. Paulson and his minions have told him. But it should be noted that after the President’s address on television, there were a number of us — led by Rep. Thad McCotter who believed we should be entitled to a Republican response.

So, there you have it. Pray for our nation. May God help us all.

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