House Conservatives Introduce ‘Free Market’ Substitute for Bailout
September 30, 2008 - 5:43 PMFollowing the defeat of the $700-billion bailout package on Monday, Rep. Jeb Hensarling, chairman of the Republican Study Committee (RSC), introduced a bill that relies on the free market rather than the federal government to solve the nation's financial problems.
Instead of mandating that the U.S. Treasury purchase up to $700 billion in teetering mortgages and mortgage-backed securities, as the plan backed by the Bush administration and congressional leadership mandated, the RSC alternative would try to restore confidence in the mortgage market by insuring all such investments at 100 percent of their value.
Under the plan, mortgages that Treasury officials deemed to be risky would be insured at a higher premium than mortgages considered stable. The mortgages would be insured by the federal government, i.e., tax dollars. Thus, the plan is not pure free market but is more reasonable than an outright federal purchase of the mortgages with tax dollars, suggested Hensarling.
“In order to fundamentally deal with the crisis, some part of the full faith and credit of the government will have to be behind it [the solution],” Hensarling told CNSNews.com, and this would shore-up confidence in the mortgage and mortgage-backed securities markets. “But Wall Street ought to be paying for that, and we ought to be limiting taxpayer exposure.”
The plan also includes provisions important to Democrats that had been a part of the Bush plan, such as a provision that would severely limit the size of the “golden parachute” an executive, whose failing companies opted into the government’s insurance plan, could receive and ensuring that financial institutions participating in the program would have to disclose more about their mortgage-asset holdings.
Hensarling said at a press conference Monday that under ordinary circumstances conservatives would not consider granting the federal government such powers of intervention, but in these “extraordinary times” his caucus realizes that compromise is necessary.
“We come here ready to swallow hard, but we can’t swallow everything,” said Hensarling. “We do not feel that models such as loans secured by assets and the insurance model received the attention they were due. On a normal day, a conservative would run for the exits from either of those plans, but these are extraordinary times.”
However, the bill also includes provisions that appeal to free-market conservatives, including the gradual privatization of federal lending giants Fannie Mae and Freddie Mac; regulations barring Government Sponsored Enterprises (GSE’s) from engaging in risky investments; and temporary tax cuts and regulatory relief for businesses.
A press release from the RSC about the alternative plan states that it will allow Wall Street to work its way out of the financial crisis rather than cause it to depend upon the American workers’ tax dollars.
“We believe that we can help Wall Street work out of this crisis, not force the taxpayers into a bailout,” said the RSC. “We believe that voluntary private capital, not involuntary taxpayer capital, will help the system recover.”
“House conservatives believe that any model that essentially has taxpayers bailing out Wall Street is fundamentally flawed,” said Hensarling at the press conference.
Sources on Capitol Hill told CNSNews.com that at least five other conservatives in the House, including Reps. Bill Sali (R-Idaho), Paul Ryan (R-Wis.), Joe Barton (R-Texas), John Shadegg (R-Ariz.), and Marsha Blackburn (R-Tenn.) are also developing alternative plans to deal with the mortgage crisis.