Mild surprise: Heritage backs bailout package

posted at 1:25 pm on September 29, 2008 by Ed Morrissey

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.

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I smell Nancy Pelosi burning…..

Mcguyver on September 29, 2008 at 2:10 PM

apparently, they yelled…. Palamino?

Romeo13 on September 29, 2008 at 2:11 PM

A very painful freedom, I hope. But at this point, all bets are off.

techno_barbarian on September 29, 2008 at 2:04 PM

I’ll take painful freedom! None of our freedoms have been handed us.

davidk on September 29, 2008 at 2:11 PM

Ok, now what? Is this some turn in the process, some deal that Rush just talked about: the dems are afraid of getting whapped out of office if they vote for this thing?

I need a scotch.

Bishop on September 29, 2008 at 2:12 PM

I’ll take no more slavery to lenders, at no more than we already have.

AubieJon on September 29, 2008 at 2:13 PM

My credit union still has great rates and plenty of money to lend, small banks are doing fine. I’m taking out a loan to buy a motorcycle and anticipate no problems.

Bishop on September 29, 2008 at 2:18 PM

Thank heavens this bill failed.

More money will not fix the problems with our lending industry.

HebrewToYou on September 29, 2008 at 2:46 PM

um. . . neither a borrower nor lender be?

ThackerAgency on September 29, 2008 at 3:42 PM

My credit union still has great rates and plenty of money to lend, small banks are doing fine. I’m taking out a loan to buy a motorcycle and anticipate no problems.

That’s what’s so interesting. For a lending environment with no money to lend anywhere(so we’re told), there sure is a lot of lending still going on.

xblade on September 29, 2008 at 3:54 PM

Go club for growth. They forgot about cutting capital gains taxes to 0 for the next couple of years to get more capital into the market (if as others have pointed out)there is a shortage of capital to begin with. This whole bailout only seems to benefit those who caused the problem to begin with. Where is the accountability to those who caused it(including the senators and representatives). So far what I have seen it those pushing this bailout the hardest are the ones who caused it. Round them up and seize their assets and use those to pay for the bailout.
But alas, they will just raise my taxes some more and move us more toward socialism.

Corsair on September 29, 2008 at 4:34 PM

If we don’t do the bail out, it might cripple the credit markets. If we don’t do the bail out, it might collapse the economy. If we don’t do the bail out, it might cost your company the ability to make its next payroll.

It might…
It might…
It might…
It might…

None of these financial geniuses will make a declarative statment, will they? We hear nothing but the worst-case scenarios. This is called fear-mongering. We have been bashing the Dems for that kind of crap – the politics of fear – for years, and it is pathetic to hear the panic-striken abetters who are supposedly on ‘our side’ displaying their lack of faith in free market principles.

A significant piece of the economy is going to take a very significant hit. And it should. The rest of it, and and the rest of us, will suffer for awhile and then WE WILL RECOVER. I said “will”, not “might”. Do we or do we not believe in the free market? Why are so many running away from our beliefs at the first serious challenge to them? Is all of our pontificating about it merely hogwash and fair-weather platitudes?

We will recover from this crisis. We will never recover from the bail out.

ss396 on September 29, 2008 at 11:49 PM

MY visceral reaction to Pelosi’s speech is probably precisely what she wanted. She wants this failure to get even worse so that she can use the MSM in the Democratic tank to spread her message that it was a Republican failure rather than directly traceable to the Carter administration’s and Democratic Party Legislature’s CRA. It is directly fostered by failed DEMOCRATIC PARTY economic ideals. But now she has the Republicans painted as getting in the way.

Somehow the Republicans must hold their nose, vote for the compromise package as it is now, and then get viciously partisan about it.


herself on September 30, 2008 at 5:21 AM