Mark Sanford has an unusual request, at least these days, in his Wall Street Journal column over the weekend. He asks the federal government not to bail out South Carolina, the state he governs. Sanford probably feels comfortable that his request will be granted, since states run with prudence and responsibility are the ones that will get ignored anyway:
I find myself in a lonely position. While many states and local governments are lining up for a bailout from Congress, I went to Washington recently to oppose such bailouts. I may be the only governor to do so.
But I suspect I’m not entirely alone, as there are a lot of taxpayers who aren’t pleased with Christmas coming early for politicians. And I hope these taxpayers make their voices heard before Democrats load up the next bailout train for states with budget deficits. …
Community bankers tell me that they are now at a competitive disadvantage for being careful about who to lend to, because others that were less disciplined will get a federal bailout. This is also true for states. Those that have been fiscally responsible will pay for or lose out to the big spenders. California increased spending 95% over the past 10 years (federal spending went up 71% over the same period). To bail out California now seems unfair to fiscally prudent states.
Sanford expresses some curiosity at how an institution with at least $10 trillion in debt can suddenly afford to start writing checks with twelve digits to the left of a decimal point. In fact, Sanford calculates the current national debt somewhat north of $50 trillion, as he counts the liabilities of Medicare and Social Security, while the government conveniently continues its bookkeeping amnesia on those liabilities. Who bails out the Chief Bail-Outer?
At a certain point — and we have probably passed it already — not even the taxpayers can do it. We’re entering the realm of imaginary numbers, a place where the bill has gone so high that no one can credibly calculate how to repay it. And these same taxpayers just elected an administration and a Congress that wants to create even more entitlements, making the crisis even worse, rather than finding ways to extricate the American government from the financial trap set over the last few decades.
I write to inform you of the actions I will be taking during the lame duck session of Congress regarding the funding status of the Troubled Asset Relief Program (TARP). Given the recent news about Secretary Paulson’s execution of the TARP program, I firmly believe action is required by Congress. I plan to push for legislation that will require Secretary Paulson’s plan for the remaining $350 billion in authorized TARP funds to be ratified by an affirmative vote in the U.S. Congress.
In my statement opposing the Paulson Plan last month, I laid out two primary reasons why I voted ‘no.’ The first is that I wasn’t convinced that asset-purchase program was the right way to do this, and the second is that it would lead to increased lobbying for handouts and bailouts by any industry facing financial trouble.
I stated at the time that my vote was against the Paulson plan – not against taking extraordinary action to provide necessary confidence to financial markets. I stated that “The Paulson plan would have Washington take $700 billion worth of toxic Wall Street assets from financial firms’ balance sheets and put them on the balance sheet of the federal government…. I’m not confident in its success.”
The critics were right. On October 14th, in a significant shift, Treasury outlined a plan to directly purchase equity stakes in of major financial institutions. The Wall Street Journal noted that “critics…say Treasury should have formulated a comprehensive plan earlier in the crisis.” This past week, Secretary Paulson announced that he has completed a remarkable about face, as summarized by November 13th Investor’s Business Daily front page headline, which read, “In Major Reversal, Treasury Won’t Buy Bad Mortgage Debt.” This is a complete reversal. Why did Paulson reverse course? Thursday’s Los Angeles Times provides the answer. “Treasury Secretary Henry M. Paulson’s decision to abandon plans to buy troubled bank assets shows that he has come to two conclusions about what was once the chief focus of the government’s $700-billion bailout: The first is that it wouldn’t work.”
I know many of you have serious concerns about how Secretary Paulson has executed the financial rescue program and I share them with you. Congress abdicated its Constitutional responsibility by signing a truly blank check over to the Treasury Secretary. However, the lame duck session of Congress offers us a tremendous opportunity to change course. We should take it.
During the lame duck session, I will be taking the following actions. First and foremost, if Secretary Paulson submits his plan to Congress in order to access the remaining $350 billion while we are in session, a doubtful prospect, I plan to immediately introduce the disapproval resolution pursuant to Section 115 of the EESA and push for its enactment. I will also introduce and actively pursue enactment of legislation to do two things: First, it will amend Section 115 of the Emergency Economic Stabilization Act of 2008 (EESA) to require an affirmative vote on the part of Congress to approve Treasury’s plan for the remaining $350 billion, instead of the current statutory process which gives Secretary Paulson far too much latitude. Second, it will require a freeze on any remaining funds of the first $350 billion. It is imperative that we not allow that amount of money to be added to a deficit approaching $1 trillion this year without any input from the legislative branch.
Secretary Paulson stated in a CNBC interview at 2:00pm on Friday, November 14th that “the financial markets have been stabilized.” If that is the case, it is Congress’s duty to have a say in what happens with the remaining authorized amount of $350 billion. It is clear that it was a mistake to sign a blank check to one man for such a tremendous amount of money. Though there are still significant challenges in financial markets, it appears that the threat of a catastrophic financial crisis, which was the justification for the grant of such sweeping authority, has subsided. Perhaps the additional $350 billion should not be added to the deficit. Congress should have a debate.
The only reason for federal intervention at all was to recover the damage created by the initial government distortion of the lending markets by providing some value to the mortgage-backed securities issued by Congressional mandate. That was what infected the financial markets and turned a cyclical recession into a potential global meltdown. TARP would have provided limits to government intervention, had Paulson stuck to that plan — but Paulson now won’t use any of the money to undo the MBS damage. Instead, he’s buying bank assets and touching off a bailout free-for-all.
Why? After two weeks of literally begging for TARP, Paulson has supposedly suddenly discovered it wouldn’t work. Why should we trust Paulson with a single dime of money after that?
Inhofe has the right idea. We need to cut off the money spigot now. As Sanford notes, it’s only producing long-term debt when we haven’t figured out how to pay off the loans we’ve already taken.