I call this a mild surprise only because no other realistic options exist at this point. The US government poisoned the financial markets with the equivalent of junk bonds, and somehow the US government will have to find a way to provide an antidote. Heritage Foundation fellows Stuart Butler and Edwin Meese, the former Reagan administration Attorney General, reluctantly agree:
Financial markets in the United States and around the world face a dire emergency requiring urgent and decisive action. Some key parts of the credit market are on the verge of gridlock, resulting not just in the collapse of major financial institutions but also in credit disruption that is severely weakening the long-term prospects of non-financial companies. And while this is currently most visible in Wall Street and in the financial sector, it is only a matter of time before the fallout hits Main Street, with potentially devastating economic effects for typical American households.
Swift action is needed to deal with the “toxic” mortgage-backed securities that are causing credit markets to seize up. The package of emergency steps now before Congress is intended to address that problem and restore America’s credit markets while protecting the taxpayer as much as possible from the cost of dealing with the crisis. …
Thus serious constitutional concerns remain and should be addressed in putting together a statute to deal with this current and hopefully temporary credit emergency. The constitutional questionability of some provisions is worrying, as is the centralization of power. Nonetheless, the situation is so grave that we must take unusual measures now and accept some negotiated arrangements that remain very troubling, provided they are limited in extent and time and are not accepted as a permanent part of our government.
The entire webmemo doesn’t take long to read and make its argument. Meese and Butler clearly don’t like the bailout bill, although they do like the improvements made over the weekend. It will require more work as the government attempts to extract the poison from the system, but they need to act now to forestall a greater collapse.
I believed that Heritage would more or less oppose the bill. Will this help convince free-market conservatives?
Update: Club for Growth opposes:
The Club for Growth urges all members of Congress to reject the latest “compromise” bailout bill.
Although conservatives in the House convinced Congress to strip many of the worst elements of the previous “compromise” bailout bill, the legislation remains fundamentally flawed. The bill increases the federal debt by billions of dollars, rewards bad decisions made by failing banks, and establishes a dangerous precedent for government bailouts down the road. This bill should be defeated, and it is clear from the precipitous drop in the Dow this morning that the markets are equally unimpressed with this legislation.
Instead of passing this bill, Congress should do two things immediately to help our credit markets. First, Congress should immediately suspend mark-to-market rules for banks. Second, Congress should lift the cap on the FDIC’s guarantee on transaction accounts at banks. Last week, the government instituted an unlimited guarantee on money market funds, creating an incentive to withdraw deposits from banks. The last thing the government should be doing is encouraging a run on banks. The best way to fix this under current circumstances is to lift the FDIC’s cap.
“For years, Congress played a central role in creating and encouraging the current crisis,” said Club for Growth President Pat Toomey. “With this bill, Congress further undermines our free-market system. If Congress really wants to stabilize the markets and restore financial confidence, it should suspend mark-to-market rules and lift the cap on the FDIC’s guarantee on transaction accounts. No member of Congress should leave town without getting this done.”
The Club for Growth will be key-voting the vote on the bailout bill, urging all members to vote “No.” Key votes are included in our Congressional Scorecard for the 110th Congress. The scorecard provides a comprehensive rating of how well or how poorly each member of Congress supports pro-growth, free-market policies.