Bailouts are controversial – while they instill consumer confidence and help to bring markets back to some sense of normalcy, they also create major issues.
Freddie Mac and Fannie May’s shareholders lost big when they were taken over by the government which has now resulted in investors being reluctant to pump new cash into the struggling institutions. And now with a much smaller industry and the value of assets less than everyone thought who will invest?
The looming bailout is in Congress now and is up against serious protest from those who do not want to see the government buying these highly uncertain mortgages and other risky debt using taxpayer money. The Treasury would even have to borrow to buy this risk due to the US deficit.
Congress specifically protests a clause which states that the decisions the Secretary makes are final and non-negotiable. This takes any and all ability of Congress to govern how these tax dollars are spent.
Some wonder about the accountability factor. Since when do firms get saved for their mistakes? After all, they get rewarded for their successes, and in this capitalist economy – the leader of all capitalist economies – shouldn’t they pay the price for their incompetence? What message does that tell other institutions about how they should manage risk?
Opponents to the bailout are bipartisan. They include liberal democrat Dennis Kucinich, democrat-turned-republican Alabama Senator Richard Shelby, and Conservative Republican Representative Mike Pence of Indiana, who was one of the first to raise his concerns.
Former presidential candidate and current Representative from Ohio Kucinich, labels the proposal “cash for trash”. He proposes creating a national trust fund out of $700 billion in stock and distributing it to all Americans instead. Each would receive $2,300, the amount this bailout would cost each American.
Kucinich commented, “The Wall Street financial disaster is an opportunity to create a genuine ownership society. If Congress invests $700 billion in the market, then the American people must get something of real value for their investment."
The Bush Administration supports compensation for the Wall Street executives who created this mess in the first place. Congressman Barney Frank (D-Massachusetts), who is the chairman of the House Financial Services Committee, told CNN, "The notion that while they are getting this help from the federal government we can't tell them not to have golden parachutes, not to pay millions to some of the very people who made bad decisions, as a retirement gift, is unacceptable to us."
But according to The Center for Responsive Politics, Wall Street gives hundreds of millions in political donations, making them one of the largest contributors. It is no surprise the Bush Administration is supporting these executives.
Ron Portobello, EconomyWatch.com