Imprudence got us into the financial jam we’re now in, and with all due respect for Treasury Secretary Henry Paulson Jr., President Bush and panicking multitudes, it’s likely not the best way to get us out of it.
Let’s slow down on this mammoth, $700 billion Paulson bailout package for buying up mortgages. Let’s give caution a chance.
Yes, I know, a theory of the presidential candidates is that slack regulation led us into the calamity of giant institutions with tons of sour assets. Barack Obama focuses on intentional neglect by the ever dastardly Bush’s neglectful ways. John McCain goes so far as to say the chairman of the Security and Exchange Commission should be out of work for his failure to be tougher.
Maybe the candidates should do as I did a while back, namely engage in a conversation with someone who makes her living writing about federal regulations, and who noted that existing regulations are always about the last crisis, not the one coming up.
There are some convincing criticisms of the administration on some regulatory fronts, but I’ve failed to encounter credible specifics about any deviltry leading to the Wall Street imbroglio. And get this Heritage Foundation information: Regulations under Bush have increased at a cost of billions of dollars.
Skip the politics and arrive at the facts and among the real culprits you happen across is the 1977 Community Reinvestment Act, an obnoxiously stupid law with the best of intentions – it aimed at getting banks to give home mortgages to poor people on the ground that banks were discriminating against them.
In a sense, banks were: If you were a bad risk, you got no money. Because of the law and other pressure – and also because of irresponsible purchasers and get-richer-quicker lending institutions – some of these bad risks did receive mortgages, which turned out to be no favor to them; many could not pay and banks foreclosed.
A second culprit was easy money made available by the Federal Reserve’s low interest rates – another way of encouraging individuals to borrow more than they could afford and a way, too, of enabling institutions to borrow huge amounts against assets that included those dubious mortgages.
Liberals were behind the Community Reinvestment Act, and they were opposed to congressional attempts to reform Fannie Mae and Freddie Mac, the quasigovernment outfits that grew too big and careless.
Thoughtful analyses instruct us that if Democrats had not stopped this reform, we might have avoided the catastrophe summed up by such names as Lehman Brothers, AIG and Bear Stearns.
Apparently figuring that all booms go one forever with no possibility of bust, the corporate executives of these and other institutions are, of course, among the other reckless souls who have pushed us into trouble, largely by buying up securities far beyond what the collateral could sustain.
Well, enough with the craziness. Maybe the Paulson bailout is the best solution at hand, but it is wildly contrary to free-market principles, it saddles taxpayers with a huge burden that makes other public investments less doable, it comes on top of existing obligations that are enormous, it might prove insufficient or even aim at wrong targets and what we need at the very least is deliberation.
Immediate congressional action is what Paulson and Bush have asked for, and I don’t doubt they sincerely fear bad consequences if something isn’t done yesterday, but the consequences of this measure could be with us for a long, long time and another week or two or three could be vital to getting this right.
We have had imprudence enough.
Examiner columnist Jay Ambrose is a former Washington opinion writer and editor of two dailies. He can be reached at: [email protected].
