CLUB FOR GROWTH NEWSLETTERS

Home > Club for Growth Newsletters

September 24, 2008

The Wednesday Update

September 24, 2008  Volume 2, Number 39  In This Issue: Our Big Fat Government Bailout

September 24, 2008 Volume 2, Number 39 The Wednesday Update
In This Issue: 1. Big Fat Bailout 2. Now What? 3. Non-Partisan Obama     Man Hired 4. Dying for Health Care   Make a Donation today!	Keeping Free Marketers Current on Issues Thanks for your support of Wisconsin Club for Growth! We hope you enjoy the newsletter. Our goal is to be brief, informative and bit provocative. We welcome your feedback. Please feel free to contact us anytime by emailing staff@wicfg.com , or come visit us on the worldwide web. Wisconsin Club for Growth Website Tell a Friend! Our Big Fat Government Bailout With the U.S. markets in flux and large financial institutions looking for massive taxpayer bailouts, it would seem to be a good time to have a national debate about the role we expect our government to play in our economy.  Instead, it appears that the only debate taking place is Congress haggling over how many hundreds of billions it will spend to hold financial institutions harmless for their reckless behavior.   Everyone now knows what happened:  Quasi-governmental entities Fannie Mae and Freddie Mac became a major underwriter of risky subprime mortgages – when housing prices declined, Fannie and Freddie faced an avalanche of foreclosures, which forced them both to go belly up.  This sent a shock wave through financial institutions which were in cahoots with Fannie and Freddie, and giant investment companies such as Bear Stearns, AIG, and Lehman all crashed as a result.   Yet it’s not as if this economic turmoil was a surprise.  As early as 2005, Federal Reserve Chairman Alan Greenspan warned of Fannie and Freddie’s aggressive tactics, saying their actions were “placing the total financial system of the future at a substantial risk.''   In response to Greenspan’s warning, Congressional Republicans proposed a series of strict regulations to oversee the actions of Fannie and Freddie. Yet, as Kevin Hassett at the Bloomberg Press noted this week, Democrats blocked any attempt at reforming the giant mortgage lenders:   What happened next was extraordinary. For the first time in history, a serious Fannie and Freddie reform bill was passed by the Senate Banking Committee. The bill gave a regulator power to crack down, and would have required the companies to eliminate their investments in risky assets.   If that bill had become law, then the world today would be different. In 2005, 2006 and 2007, a blizzard of terrible mortgage paper fluttered out of the Fannie and Freddie clouds, burying many of our oldest and most venerable institutions. Without their checkbooks keeping the market liquid and buying up excess supply, the market would likely have not existed.   But the bill didn't become law, for a simple reason: Democrats opposed it on a party-line vote in the committee, signaling that this would be a partisan issue. Republicans, tied in knots by the tight Democratic opposition, couldn't even get the Senate to vote on the matter.   The effects of the economic downfall at the local level are just now becoming known.  The Wisconsin State Journal reported this week that tightening credit is beginning to stall major development projects in the Madison area.  As construction lags, so do jobs and other economic development that could help small communities throughout the state.   And now that we’re in this situation, it is going to cost the taxpayers in the area of $700 billion to bail these companies out – when headway could have been made much earlier.     .   What Now? With the credit crunch underway, the federal government must find a way keep these financial institutions from going under, forcing massive economic contractions worldwide.    The Bush administration is urging Congress to appropriate $700 million to purchase large bundles of mortgages to auction off to investors in the form of government bonds. The government could get pennies on the dollar for the mortgages or alternatively turn a profit, and nobody knows whether the initial $700 million payout will be sufficient.    Bailing these companies out sets a dangerous precedent, but it seems that American companies from airlines to investment brokers are capitalists when they’re making money and socialists when they run their businesses into the ground.  In the on-deck circle are the auto makers, whose decisions to offer lavish health care benefits to their unions may sink them soon without a taxpayer bailout.  In the end, fewer businesses are going to make the smart economic choices they need to if they believe government is going to be there to save their skins.   Former Speaker of the House Newt Gingrich has analyzed the U.S. Treasury Department’s bailout plan, and has made some suggestions that could help America in the long-term.  As Gingrich says in his piece, Congress should “avoid the sudden panic of a one-week solution that becomes a 20-year mess.”   Gingrich believes that stronger regulation can take the place of a massive taxpayer bailout.  He suggests suspending the Sarbanes-Oxley law, which imposes unnecessary burdens on small businesses.  He urges lower business taxes, to make us more competitive with India and China.  Finally, he thinks an energy plan that keeps more money here in the U.S. will further bolster the economy.   Neither of the presidential candidates has been particularly sharp on the issue, and neither has issued a plan that effectively protects taxpayers.  With an election six weeks away, it makes it infinitely more difficult to think long-term to solve this unprecedented crisis.  Hopefully, Congress will act responsibly to protect the long-term interests of taxpayers, and not their own short-term political interests.         Doyle Hires Non-Partisan Obama Man   Amid media reports about Republican Attorney General J.B. Van Hollen’s lawsuit against the Wisconsin Government Accountability Board, Democrats and their liberal allies in the media continue to assert that the suit is “politically motivated” since Van Hollen chairs John McCain’s campaign in Wisconsin.  Yet you rarely see any reference to the political connections of the people fighting the lawsuit, which is intended to get the GAB to follow federal law and ensure the integrity of elections.   It just so happens that Governor Jim Doyle hired private attorney Lester Pines to fight the Attorney General’s lawsuit after Pines held a fundraiser for Obama at his home.  State taxpayers are giving Pines nearly $200 an hour to fight the taxpayers funded lawsuit against the GAB.  Oh and did we mention that Jim Doyle, the state’s most powerful Democrat serves as the Chair of Obama’s Wisconsin campaign?   When Doyle signed the legislation creating the GAB he said, “The Board’s mandate will be to ensure the effectiveness and independence of our ethics rules and election practices.”  But he didn’t say whenever it’s convenient or advantageous to my party to do so.     Dying for Health Care Those dying for Canadian-style government run health care in Wisconsin should take notice of the 45-year old Winnipeg man who died last week after waiting 34 hours in a Canadian emergency room.  According to reports, he was dropped off at 3 P.M. last Friday, and found dead, still waiting for care, at Midnight on Sunday night.   So Senate Democrats can go on referring to their plan as “Healthy Wisconsin” – although the only thing “healthy” about the plan may be casket sales.