Economic Rescue Plan Warranted Skepticism

Press Release

One needs look no further than the headlines on the front page or the lead story on the nightly news to see our economy is facing unprecedented challenges. With consumer confidence at one of its lowest points - and a skittish marketplace - Congress needs to tread carefully.

Earlier this year, the major investment bank Bear Sterns faced a severe shortage of liquidity due to mounting losses on its mortgage-related assets. In March, the Federal Reserve extended a $30 billion line of credit to JP Morgan Chase to help it acquire Bear Stearns and its trouble assets. Then, in September, the Treasury exercised its authority to provide financial assistance to Fannie Mae and Freddie Mac, private-sector corporations designed by the federal government to promote homeownership by enhancing the supply of residential mortgage funding.

Fannie Mae and Freddie Mac faced mounting losses on their considerable stock of mortgage-related assets, and these losses were expected to continue as foreclosures mounted and the housing market continued to tumble. In the end, the Treasury felt it had no choice but to rescue the companies before they toppled.

Finally, and even more recently, the government took measures to save AIG, one of the world's largest insurers.

There has been much said about excess and bad decisions by lenders, borrowers and investment banks. President Bush, in his address to the nation just a few days ago, spoke of lenders not being careful enough when they extended credit. He spoke of borrowers getting in over their heads, and of too easy credit, of bankers who were too free with cash.

Some have called the Administration's proposal a "$700 billion bailout," because the Treasury secretary has requested the authority to purchase up to that amount in mortgage-backed securities, a key component of the market turmoil in which we find ourselves. Others have suggested the government could make money off this action, because the Treasury would eventually resell the assets it had purchased - presumably for profit.

However, conservatives - myself included - feel nationalizing every bad mortgage in America - in what some have called the largest corporate bailout in American history - is not the answer.

Now, congressional offices, like my own, are being inundated with constituents who view the pending emergency financial legislation as a "gift to the wealthy" (as one Nebraskan put it) at the expense of taxpayers. I've heard from many of you - and I appreciate this open communication with constituents.

The beauty of the free market lies in its self-regulation. Smart investors prosper, while the ones who make poor choices - or who get carried away into risky ventures - lose. The reality of the matter is government involvement - as necessary as it is to keep our economy from grinding to a halt - sets a dangerous precedent.

The government exists to protect consumers, to set boundaries around the marketplace; it does not exist to ensure businesses succeed, nor to actively participate in our markets.

Late last week, the $700 billion bailout proposal had shrunk to an initial $250 billion, with more to come if the Secretary of the Treasury could demonstrate the need. Members on both sides of the aisle expressed concerns with early aspects of the proposal - including granting the Treasury authority that could not be questioned or reviewed.

As negotiations continued, proposal were set forth in which the federal government provides insurance to struggling firms with agreed upon conditions as a way to reduce uncertainty and restore confidence without requiring the American taxpayer to foot the bill. This route would guarantee that Wall Street provide the solution to its problem, not taxpayers.

Also, indexing the capital gains tax to inflation, or suspending it temporarily, would release an enormous amount of capitol into our economy. Passing an energy bill which lessens the price of gas through more domestic exploration, wind, solar, hydropower, and nuclear power would bring relief and do much for consumer confidence. Temporary tax relief provisions can help companies free up capital to maintain operations, create jobs, and lend to one another. And providing certainty to investors - by providing real tax relief rather than look forward to what will be the largest tax increase in America's history in 2011 - is absolutely key.

We should be committed to putting the interest of hardworking taxpayers first. We should focus on protecting those who have done the right thing - those who took responsible home loans and have struggled to save to keep up with their obligations, even as high gas prices and other costs have taken their toll on household budgets.

In the end, policies which encourage stability rather than socialism, free markets rather than government intrusion, and personal responsibility and choice rather than bailouts and handouts, should guide our economic recovery.

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