Bailout by the Numbers....

549 is the number of bailout-related gripe groups that have been formed on Facebook, ranging from "I want my bailout!" constituency to a group lobbying for a bailout of struggling mimes.

$8,887 is how much the government has spent per person since 2007 on bailing out the financial system, based on a tally by CNNMoney.com. THat doesn't include the latest plan to invest another $100 billion in privately managed distressed-debt funds that will buy up problem loans.

-27% is the year-to-date loss posted by the three-month-old Nasdaq OMX Government Relief Index (QGRI), which tracks the returns of companies receiving bailout money. By comparison, the S&P 500 is down only 9%.

There's No Pain-Free Cure for Recession

Belt-tightening is required by all, including government
By PETER SCHIFF

As recession fears cause the nation to embrace greater state control of the economy and unimaginable federal deficits, one searches in vain for debate worthy of the moment. Where there should be an historic clash of ideas, there is only blind resignation and an amorphous queasiness that we are simply sweeping the slouching beast under the rug.

With faith in the free markets now taking a back seat to fear and expediency, nearly the entire political spectrum agrees that the federal government must spend whatever amount is necessary to stabilize the housing market, bail out financial firms, liquefy the credit markets, create jobs and make the recession as shallow and brief as possible. The few who maintain free-market views have been largely marginalized.

Taking the theories of economist John Maynard Keynes as gospel, our most highly respected contemporary economists imagine a complex world in which economics at the personal, corporate and municipal levels are governed by laws far different from those in effect at the national level.

Individuals, companies or cities with heavy debt and shrinking revenues instinctively know that they must reduce spending, tighten their belts, pay down debt and live within their means. But it is axiomatic in Keynesianism that national governments can create and sustain economic activity by injecting printed money into the financial system. In their view, absent the stimuli of the New Deal and World War II, the Depression would never have ended.

On a gut level, we have a hard time with this concept. There is a vague sense of smoke and mirrors, of something being magically created out of nothing. But economics, we are told, is complicated.

It would be irresponsible in the extreme for an individual to forestall a personal recession by taking out newer, bigger loans when the old loans can't be repaid. However, this is precisely what we are planning on a national level.

I believe these ideas hold sway largely because they promise happy, pain-free solutions. They are the economic equivalent of miracle weight-loss programs that require no dieting or exercise. The theories permit economists to claim mystic wisdom, governments to pretend that they have the power to dispel hardship with the whir of a printing press, and voters to believe that they can have recovery without sacrifice.

As a follower of the Austrian School of economics I believe that market forces apply equally to people and nations. The problems we face collectively are no different from those we face individually. Belt tightening is required by all, including government.

Governments cannot create but merely redirect. When the government spends, the money has to come from somewhere. If the government doesn't have a surplus, then it must come from taxes. If taxes don't go up, then it must come from increased borrowing. If lenders won't lend, then it must come from the printing press, which is where all these bailouts are headed. But each additional dollar printed diminishes the value those already in circulation. Something cannot be effortlessly created from nothing.

Similarly, any jobs or other economic activity created by public-sector expansion merely comes at the expense of jobs lost in the private sector. And if the government chooses to save inefficient jobs in select private industries, more efficient jobs will be lost in others. As more factors of production come under government control, the more inefficient our entire economy becomes. Inefficiency lowers productivity, stifles competitiveness and lowers living standards.

If we look at government market interventions through this pragmatic lens, what can we expect from the coming avalanche of federal activism?

By borrowing more than it can ever pay back, the government will guarantee higher inflation for years to come, thereby diminishing the value of all that Americans have saved and acquired. For now the inflationary tide is being held back by the countervailing pressures of bursting asset bubbles in real estate and stocks, forced liquidations in commodities, and troubled retailers slashing prices to unload excess inventory. But when the dust settles, trillions of new dollars will remain, chasing a diminished supply of goods. We will be left with 1970s-style stagflation, only with a much sharper contraction and significantly higher inflation.

The good news is that economics is not all that complicated. The bad news is that our economy is broken and there is nothing the government can do to fix it. However, the free market does have a cure: it's called a recession, and it's not fun, easy or quick. But if we put our faith in the power of government to make the pain go away, we will live with the consequences for generations.

Wake Up UAW! The End is Near!!!

The R.C. Blog has been highlighting the bailouts since the fall and has specifically gone after the unions (leadership, not members...) for the fall of the Big Three. The R.C. Blog continues to support restructuring or bankruptcy for the three U.S. automakers, not a temporary bailout. Unless the union contracts are restructured, the automakers will eventually fail anyway; why waste taxpayer money on a band-aid.

Major and immediate UAW restructuring is needed in order for the Big Three to get back on track to ultimately become a global player in the auto industry. The chart on the left tells the story...

Great editorial from Saturday's Investor's Business Daily:

The proposed $15 billion bailout of the Big Three failed in the Senate for one major reason: Some lawmakers stood up to the unions. But their stand may be moot, since automakers may get the money anyway.

For a full week, GOP lawmakers bore the brunt of the bitter battle waged over an aid package for GM and Chrysler. Though the idea is wildly unpopular among voters, some Washington politicians were desperate to pass it — particularly the Democrats, who are beholden to the Auto Workers and other unions for tens of millions in campaign donations.

In addition to major restructuring by the automakers, GOP senators insisted on givebacks by the United Auto Workers. The UAW responded with a resolute "No." But the bailout foes won, killing the $15 billion in aid.

And they were right to do so.

As the chart shows, gold-plated union contracts are a big reason for U.S. automakers' woes (though managerial incompetence at the Big Three also played a role). The average Big Three worker made $73.26 an hour in 2006; the average worker at a foreign transplant, $44.20. Bailout foes wanted the gap to be shrunk by the end of next year.

A chart making the rounds on the Internet tells it all: Last year, Toyota made 9.37 million vehicles. GM, virtually the same number. Yet, Toyota made a profit of $38.7 billion on its global operations, or $1,874 per car, while GM lost $38.7 billion, or $4,055 a car, almost entirely due to its operations in the U.S.

Even so, the UAW vowed to make no big changes unto 2011, when their current deal expires. That basically would lock in the Big Three's lack of competitiveness for at least three more years, requiring billions and billions more in bailouts or bankruptcy.

Immediately after the bill failed Thursday night, Senate Majority Leader Harry Reid said he "dreads" seeing what the stock market would do on Friday. "It's not going to be a pleasant sight," he warned. For the record, the NASDAQ rose 2.2%, while the S&P 500 increased 0.7%. He needn't have worried.

As for the UAW, they rolled the dice, betting they could lose in the Senate and still get bailed out. It looks like their gamble paid off.

On Friday, the White House said it might use money from the $700 billion Troubled Asset Relief Program — reversing its earlier stance. Why? "A precipitous collapse of this industry would have a severe impact on our economy, and it would be irresponsible to further weaken and destabilize our economy at this time," White House spokeswoman Dana Perino said Friday.

We're sympathetic, but this is the wrong path to take — especially after the president's own party successfully made its case in Congress, and won.

We don't want to see workers suffer or the auto industry disappear. But the fact is, under bankruptcy reorganization, they won't. The workers will still exist, as will their skills. Unprofitable plants that can't be turned around will close. A bankruptcy judge will sell unprofitable assets to those who can use them productively.

They won't need a "car czar," or congressional oversight, or political micromanagement. And out of this process, a slimmer, more competitive and, yes, even profitable Big Three can emerge if we let it — one that will be able to compete with foreign companies on our own soil.

More Reasoning for the Failure of the Big Three

The Big Three Bailout – Socialism's Redux

The R.C. Blog is pleased to publish the first, in what we hope are many, regular opinion pieces on current economic and political issues from one of the most knowledgeable and charismatic Conversatives in No. Va. -- Christian Stockel.

Mr. Stockel, to be exclusively featured on the R.C. Blog, has a wealth of knowledge and experience in global economics and financial management and was a senior official in the federal government and worked directly on many of the issues confronting our current economic problems.

The R.C. Blog proudly presents "Thoughts from the Right Side"...

Thoughts from the Right Side - Christian Stockel

Congress continued its inquisition of executives from the Big Three today executed under the pretense of finding a way of "saving" the big three from extinction. Unfortunately, the political narrative being fed to the American public hides the real objective Congress and the political allies of the Democrat party. This objective has nothing to do with the survival of the American automobile industry and everything to do with saving the UAW and paving the way for a more involved Federal presence in the private economy. A brief review and comparison of the questions posed to the executives and union bosses tell the entire story. Now don't get me wrong. I enjoy the irony of having Barney Frank and Co. lecturing Detroit executives on fiduciary responsibility, fiscal discipline, and long term thinking as much as anyone else; however, if the CEOs of General Motors, Ford, and Chrysler knew what was good for them and their companies, they would run and file Chapter 11 bankruptcy before their corporate jets lift their wheels from the runways at Dulles Airport.

Despite the popular myth that 3-4 million jobs will disappear unless the auto industry get a chance to suck at the government teat, the fact is bankruptcy (Chapter 11 style) and restructuring would most likely result in a leaner, meaner, and more competitive industry that doesn't rely on UAW labor. The fact is a total restructuring of these firms will enable to follow a successful model of production employed by foreign manufacturers in the southern U.S. The Big Three wouldn't disappear; in fact, they would thrive, free of Congressional money and control. That strikes fear in Congressional Democrats. A successful U.S. auto industry setting up shop in a southern red state (yes there are still some left) and leaving blue state Michigan to fade further would put an inconvenient crimp in the Democrat model of economic development and be an uncomfortable story line to explain to the American public. It is interesting listening to Rep. Barney Frank bemoan how the the blue collar workers are being overlooked in the Federal bail-out bonanza that favors white collar industries and workers. However his real aim is to keep the UAW relevant and their members in job contracts that have hamstrung domestic auto manufacturers for over 30 years and in the Democrat party's hip pocket.

Currently, UAW workers at GM, Ford, and Chrysler earn an average hourly wage of $71.00 including benefits. In comparison, American workers at Japanese, European, and Korean car manufacturers in the US earn an average of $37.00. This does not include the extravagant retirement benefits and iron clad job protection schemes (e.g., you can't fire people that are poor performers) that have been extorted from the Big Three. Add to that the simple fact that a company like GM supports almost two retirees for every active worker and one can easily visualize the tight spot in which the American companies find themselves. Try being swift and nimble with that anchor tied around your neck. Chapter 11 restructuring would put these contracts and job guarantees in jeopardy. After backing Barack Obama and the Democrats substantially in the past election, the UAW is going to use their leverage to protect their current position – as untenable as it may be. The made their bet and won – they will make sure that they get the pay off. Add the ill-named Employee Free Choice Act and you have a business killing environment we haven't seen since 1929. To be sure, the demands and interests of other liberal interest groups will find their way into this discussion. The environmental lobby, economic justice lobby, and I am sure the gay rights lobby will find a way to interject themselves in this effort.

Congress is looking to put together a bailout package that will not only resolve the Big Three's short term liquidity problem and provide a political win for the Democrat controlled Congress, but maintain the current labor and management model that will inevitably result in the demise of our domestic automobile industry. However, in today's short-term news cycle and public memory – that is not important. As sad as this scenario may be, the long term implications will be worse than a large spike in Michigan's already depressing unemployment rate, a sudden lack of new Corvettes, some worthless stock, and the rapid deployment of executive golden parachutes.

In fact, the scenario being played out in Congress is simply a continuation of the political narrative established in the presidential election by the Obama campaign. A narrative that re-wrote history and planted the false notion of the “failure of capitalism” in the public consciousness and the need for a “responsible role” of the federal government in the private economy. This narrative was unchallenged by the McCain campaign and the leadership of the Republican party. (Remember, “our guy” is the one who talked about having the government pay people's mortgages.) This narrative changed the nature of the public debate and is what gave the Democrat party an image of being more responsible than Republicans when it comes to addressing issues in the economy. With the presidency secured and large majorities in the House and Senate, the Democrats are using the current economic crisis as a backdrop to ram through their agenda. This agenda; however, will be far less moderate than Obama let on in the campaign and will be in fact a far-left. socialist agenda. On the heels of unprecedented government ownership and entanglement in the financial industry, Congress is poised to give the government an unprecedented role in the automobile industry. Ideas that have been discussed so far have included government ownership of stock, government representation on the boards of these companies, and of course significant government input in management-labor relations. One can only imagine what the next Cadillac or Mustang will look like with the design, engineering, and management input of Congress. Envision an all electric Pacer with recycled denim interior in pastel colors with an EPA mandated governor limiting it to 25 mph.

As this circus unfolds in front of us, we conservatives should be asking who on our side in Congress is raising the voice of resistance to the steady march of managed economics and left wing madness. Who is articulating the virtues of free markets and limited government? No – sorry – those are just crickets you hear. After getting bruised in the most recent election cycle – few Republicans are offering any political or rhetorical resistance. It is even more painful to see the Republican Presidential candidate reaching across the aisle and looking to make a deal. It seems many Republicans are only looking at the short term political implications of current economic difficulties and ignore the larger risk and potential disaster that will result from this constant bail-out process. Once this precedent is established – no industry will be safe from federal meddling. As the siren call of federal bail-out funds beckons struggling companies, an ever growing list of American industries will be snared in Congress' grasp and corporate boards headed by the likes of Dodd, Schumer, Pelosi, Reid, and Waxman will be a reality. It signals the death of American free enterprise and the unique American economic model. One day in the near future, many of us who know better will all wake up and realize we are living in a cheap copy of France without the benefit of its food and wine.

Big Three Invade Washington Looking for Handouts

GM, Ford, and Chrysler are coming to get their "piece of the pie". You didn't think it would stop with the financial market did you???

Fantastic analysis from my friends at The Heritage Foundation:

Both the House and the Senate are set to gavel back into session this week, and both chambers’ first order of business will be a proposed bailout for Detroit’s Big Three: General Motors, Ford and Chrysler. Rep. Barney Frank (D-MA) and Sen. Carl Levin (D-MI) will introduce legislation to carve out $25 billion for Detroit from the $700 billion Wall Street bailout passed last month. This is on top of the $25 billion Congress already gave Detroit this past September.

Oh, and the auto unions have already told Congress they will ask for another $15 billion next year. If you’re beginning to notice a pattern here, you’re not alone. If Congress goes through with this auto bailout, it will not be the first nor last time Detroit will be coming to Washington with its hand out. It will simply become the way the auto industry is run.

There is no doubt U.S. auto manufacturers are in real trouble. Each company posted large losses in the third quarter, with General Motors and Ford reporting losses between $2 billion and $3 billion. But while all auto manufacturers have suffered a downturn in sales, Toyota still managed to come out in the black this past quarter. The problem is not an inherently troubled industry.

The problem is that Detroit’s automakers are trapped in a business model designed for another era. Union contracts force the Big Three to pay their workers an average of $30 more per hour than competitors like Toyota. The Big Three have to keep 15,710 independent dealerships happy nationwide, compared to only 4,000 for all their Japanese competitors. Finally, the Big Three are saddled with billions in annual “legacy costs” that go to more than 800,000 retirees and pay for enormous amounts of facilities they will probably never use again.

The policy question facing Washington is how best to facilitate the changes Detroit must make to survive. The left wants to run everything through Congress. Speaker Nancy Pelosi (D-CA) wants to choose what types of cars the automakers can build and craft a centralized plan to “assure the long-term viability of the industry.” Frank wants a “very tough oversight board” that could “veto ventures” new management wants to pursue. Detroit will never go through the necessary changes with Congress in charge. The types of changes needed will be painful and unpopular, and it is difficult to imagine politicians allowing them, never mind insisting on them.

There is an alternative. And it’s right there in the U.S. Constitution: bankruptcy. Since the founding of our country, the bankruptcy process has been an essential part of the nation’s commercial fabric. Bankruptcy is not the end of the road; it is, rather, a new beginning. The reorga­nization process provides unique flexibility to unlock the fundamentally sound productive capa­bilities of a faltering business by freeing it of many obstacles to success, such as unviable contracts, crushing debt and poor management. Reorganiza­tion is the right tonic for businesses like the Big Three that need to adjust quickly to new economic realities but are, at their cores, sound, productive and potentially profitable.

The fight over how the Big Three should be reformed will be an early test for the incoming liberal majority. The auto industry is hardly the only sector of the economy that is facing difficult choices. How Washington deals with Detroit will set a precedent for other businesses. As Sen. Richard Shelby (R-AL) told “Meet the Press” this weekend: “This is just a beginning of corporate welfare in a big, big way.”

Who's Next Onboard the "Socializing America" Train? It's the Automakers!

From the September 29 R.C. Blog:

"The Congress and Federal Government need to get out of the business of providing unlimited financial support, bailouts, incentives, and plum financing to private enterprises. It has been going on for decades and is spiraling completely out of control with this latest problem. If Congress sets a precedent for federal bailouts of private companies that have a tremendous impact on the economy and stock market, who will be next? Ford? GM? United Airlines? The auto and airline industry already get significant "financing" and incentives from the government, but they'll come looking for much more after this bailout package passes."

As predicted, the "others" would soon line up and they are. Any bailout of the auto industry in America is merely a band-aid on a much larger problem.

The "real" problem with the Big Three is the same problem they have been dealing with since the 1970s -- the unions. If the Big Three operated with the same workforce and efficiency as Toyota, Honda, and Nissan, they would be in a much stronger financial position.

When the unions went away from protecting American workers from unfair labor practices in the early and mid 20th century and began holding the private sector hostage to outrageous demands for pay, health benefits, work hours, etc., it began taking its toll on U.S. business. This is the core reason why the U.S. manufacturing industry in the Midwest is already gone and why the automakers are next. It may take another decade or so, but the Big Three will die or get gobbled up by the New Big Three -- Honda, Toyota and Nissan...

I've said it for years, and I'll say it again, American unions are crippling American business. They were vital at a moment in time when the American workers were being treated like slaves (read "The Jungle" by Upton Sinclair); today, they are simply a thorn in the side of American ingenuity and productivity.

From today's news wires:

Momentum is building in Washington to aid wounded U.S. automakers with cash to help their finance arms and possibly even money to help seal a deal for General Motors Corp. to acquire Chrysler Llc.

Officials "at the highest levels" of the Treasury, Energy and Commerce departments have talked to top automaker executives on the topic, presidential spokeswoman Dana Perino said yesterday. "It's a possibility that they could qualify under it."

Congress recently authorized $25 billion in low-interest loans designed to help automakers develop new energy efficient technology but to also help keep the companies afloat amid hard times.

Each of Detroit's Big Three automakers are burning up cash as the U.S. auto market downturn continues with no end in sight. Analysts say GM and Ford are spending more than $1 billion per month more than they bring in. They add that GM could reach its minimum operating cash level of $14 billion sometime next year. GM's sales are down 18 percent, and the company has lost $57.5 billion in the past 18 months, although much of that comes from noncash tax accounting changes.

Chrysler's figures are unknown because it's a private company. But industry analysts say the automaker apparently is in the most dire condition, and its owner, Cerberus Capital Management Lp, is in talks with GM, the combined Nissan Motor Co. and Renault SA and others about selling the company.

Perino said that the administration is "working as quickly as we possibly can" to finalize the regulations necessary to release the $25 billion in congressionally approved loans to automakers, but she wouldn't put a specific time frame on it or rule in or out any further federal aid, beyond the loans, to stave off bankruptcy by any of the U.S. automakers.

Republican presidential candidate John McCain and Democratic presidential nominee Barack Obama have called for the $25 billion to be expedited. Obama has also said the loan program should to be doubled to provide $50 billion.

The slump has set off fierce lobbying on behalf of the auto industry ahead of the U.S. presidential election, with supporters arguing that a bankruptcy of an automaker would have a cascading impact across the country.

David Cole, chairman of the Center for Automotive Research, estimated that a failure of GM or Ford could threaten as many as 2 million jobs.

Thank You, House Republicans

Here's the latest blog entry from Mark Levin on National Review Online regarding yesterday's failed House vote on the financial bailout:


I have read the posts here and elsewhere. Sometimes these things are made to look more complicated than they really are. From an economic perspective, if the problem is liquidity and credit, there simply is no need for the federal government to assume massive amounts of debt on its book by assuming loans in anticipation that their holders or borrowers will default. This seems to me like a brand new expanse of government power that is not justified (if it ever is) by the arguments made on its behalf.

The government controls monetary policy through supply and interest rates, among other things. It can further ease money supply and credit, thereby increasing the flow of capital. The government controls tax policy. It can increase liquidity and the flow of new money into the economy both from within the country and from foreign sources by eliminating the corporate income tax and the capital gains tax even on a mid-term basis. No matter what is done, some financial institutions will fail, as they did in the 1981-82 recession and have since. And the Fed and Treasury and other instrumentalities of government will have to determine, on a case-by-case basis, whether to intervene and how to intervene. They will also have to determine whether other policies require modifying, such as the McCain proposal today, in which he suggests increasing federal insurance for individual depositors from $100,000 to $250,000.

Other smart suggestions include modifying the mark-to-market rule requiring financial institutions to downgrade the valuation of assets. If the goal is to prevent panic in the economy by investors and depositors, then increase credit, liquidity, and the flow of capital, and deal with problem institutions that are significant enough in size that their demise could resonate to the wider economy. But the Soviet-style, top-down five year plan a la Paulson's proposal, and to a significant extent the proposal that was voted down yesterday, could easily do more damage to both the economy and our governmental structure. So, in this respect, I must depart from NRO's editorial.

Also, count me among those few here who want to thank the House Republicans for taking a bold stand against what had been a stampede on a scale I have never before witnessed on matters of huge consequence. Conservatism is more than a quaint belief-system to be embraced and debated over donuts at Starbucks. It is more than a list of talking points. It is the foundation of the civil society. The liberal uses crises, real or manufactured, to expand the power of government at the expense of the individual and private property. He has spent, in earnest, 70 years evading the Constitution's limits on governmental power. If conservatives don't stand up to this, who will? If they don't offer serious alternatives that address the current circumstances AND defend the founding principles, who will? The House Republicans have done both. And I, for one, thank them.

Incidentally, if you want to buy a home or car today you can. And if your credit is decent, you can get loans at a good rate. Last week we were told that if a deal was not struck by last Friday, our economy would collapse. It has not. That is not to say the evidence of economic troubles or worse should be ignored. It is to say that now is a time for reasoned decisions based on tried and true principles, not for abandoning them. I notice that the socialist, who, for the last 30 years, has insisted that private institutions make risky loans based on non-economic factors, still has not abandoned his policies. Socialism does not work. We shouldn't support more of it.

"Let's Go to the Video Tape..."

Please spend a few moments and watch the video below with clips from the 2004 House hearing on the regulation of Fannie Mae and Freddie Mac. Perhaps someone should forward a copy of this video to Madame Speaker!! I'm sure she would want to clarify her statements of the past few days blaming Bush and the Republicans for the financial mess. When will America learn?

Bailout Bill Fails to Pass House

This afternoon, the House failed to pass the most current version of the $700 billion+ financial bailout bill by a vote of 228-205. Kudos from the R.C. Blog to those Conservatives, led by Rep. Mike Pence (R-IN), as well as Democrats, who together saw the poorly-crafted and rushed bill for what it was -- a feeble attempt by the Bush Administration, the Democrat House leadership, and the moderate Republicans to keep the world's financial markets from falling further, not from solving the problem.

Today's defeat of the bill was a positive step and sent a message to the House leadership and the White House that most of America is not in favor of the government's plan to nationalize/socialize our country's leading financial institutions, at least not without some checks and balances and guarantees that once these firms return to strong performance, the taxpayers get the first rewards -- not the CEOs, lobbyists, or members of Congress.

The Congress and Federal Government need to get out of the business of providing unlimited financial support, bailouts, incentives, and plum financing to private enterprises. It has been going on for decades and is spiraling completely out of control with this latest problem. If Congress sets a precedent for federal bailouts of private companies that have a tremendous impact on the economy and stock market, who will be next? Ford? GM? United Airlines? The auto and airline industry already get significant "financing" and incentives from the government, but they'll come looking for much more after this bailout package passes.

Am I happy that the markets crashed and burned today? Of course not. But it was a small price to pay to be sure that the final version of the bailout bill, which will ultimately get through, has all the unnecessary "fluff" pulled out of it to ensure that my children and their children are not caught holding the tab for the greed of CEOs, traders, Congressional members, and citizens who got in WAY over their heads with mortgages and equity lines. Just because my neighbor decides to buy a $500K house and a $60K car with money he/she does not have should not put me in a position to pick up the shortfall.

Finally, I listened to House Speaker Pelosi both this morning and this afternoon (and laughed...)as she blamed the Republicans for (1) causing the entire financial mess and (2) voting against the bailout bill. Isn't she the leader of the Democratic party in the House? Today's vote only needed a simple majority, which the Dems hold comfortably. If she was doing her job instead of making excuses and blaming others, she should have been able to unify her own party and get this bill passed without even one Republican vote. Perhaps she should look in the mirror before throwing accusations at the other side (actually, she probably shouldn't...).

The real reason it didn't pass today is that the Dems are afraid, very afraid. They don't have the guts to attached their majority status to such an important and controversial piece of legislation. They loved taking over the majority, as long as it only meant getting basic and non-controversial legislation through the House. Time for Madame Speaker to stand up and lead her party. This should be fun to watch....

Why I Oppose the Bailout -- by Rep. Mike Pence

Rep. Mike Pence shows once again why he is the voice of the Reagan Conservatives on Capitol Hill. We need to get him into Richard Lugar's Indiana Senate seat ASAP so we can start preparing him for the Presidency...

September 28, 2008

Dear Colleagues:

Our nation has been confronted by a serious crisis in our financial markets. The President and this Congress were right to act with all deliberate speed in addressing this crisis.

We now have a deal that promises to bring near-term stability to our financial turmoil, but at what price? Economic freedom means the freedom to succeed and the freedom to fail.

The decision to give the federal government the ability to nationalize almost every bad mortgage in America interrupts this basic truth of our free market economy.

Republicans improved this bill but it remains the largest corporate bailout in American history, forever changes the relationship between government and the financial sector, and passes the cost along to the American people. I cannot support it.Before you vote, ask yourself why you came here and vote with courage and integrity to those principles.

If you came here because you believe in limited government and the freedom of the American marketplace, vote in accordance with those convictions.

Duty is ours, outcomes belong to God.

We have fought the good fight. Now we need to finish the race and make sure that posterity and the American people know there were conservatives who opposed the leviathan state in this dark hour.

And if you do this I promise you, I will stand with you and, I believe with all my heart, the American people will stand with you as well.

MIKE PENCE

Mr. Pence, a Republican, represents the 6th District of Indiana in the U.S. House of Representatives. He was chosen as the HUMAN EVENTS "Man of the Year" in 2005.

Heritage Foundation Founder Paul Weyrich Provides Comments on Financial Bailout

Free Congress Foundation Commentary
Questionable Economics at the Presidential Level
By Paul M. Weyrich

September 26, 2008

Messages have poured in asking my opinion of the trillion-dollar bailout announced by President George W. Bush late last week. I hesitate to discuss this topic because I am not an economist nor do I have any special insight which would enable me to offer an informed comment. I can provide my opinion. For what it is worth, here it is.

The White House arranged a conference call with an official who had been working on the matter. I sat in on the discussion. Surprisingly, there were only two questions asked. Mine was one of them. I asked the White House economist to give me an estimate of what this bailout eventually would cost the taxpayer. He replied that he had no idea. It depended, he said, upon how well the new entity which would buy and re-sell assets handles the situation. In a best case scenario the entity actually would make money. That would happen if the entity were able to buy low and sell high. On the other hand, if things didn’t work out, the economist said, the taxpayer could be on the line for a lot.

President Bush, in defending the hundreds of billions required to bail out AIG, said it was too big to fail. However, there are many thriving businesses inside AIG not in any danger of going under. AIG has assets of $17 trillion whereas $100 billion was needed in twenty-four hours to prevent bankruptcy. AIG could not get its hands on cash fast enough, it would seem. That being the case, I don’t understand why the highly profitable parts of AIG couldn’t have been separated out while letting the part of AIG which experienced the shortfall declare bankruptcy. One thing, at least we won’t have to suffer through those AIG commercials with precious children who know more about running their businesses than their parents. One of the children always confesses that his parents are with AIG to the cheers of everyone else.

I also don’t understand the Federal Government’s picking and choosing which investment banking firms are to survive and which are to disappear. The market is supposed to determine this. In fact, I thought one of the cornerstones of the free-enterprise system is that companies which are run poorly likely will fail. An elderly gentleman called in to Austin Hill’s radio show on WMAL Radio in Washington. He said he had come to the United States four years ago from the former Soviet Union. He told Hill that the Russians, despite recent problems, are advancing free enterprise whereas we in the USA are promoting socialism. I am afraid he is correct.

What of the big one? What of the Bush proposal that has the Federal Government picking up all bad debts to allow the banking system to behave as usual? Essentially this would create a two-tier system in which we have capitalism for profits and socialism for losses. This goes against everything in which I ever believed. Ninety-three percent of mortgage holders pay their bills on time. Why not let the other 7% default? If some mortgage bankers are stuck with bad paper because they foolishly gave home loans to people who could not afford them those bankers should have to sink. It seems to me we would be stronger for it in the long run, even though there would be significant disruption in the short term. I hope I am wrong. The stock markets surely liked Bush’s proposal. It wiped out all loses of the previous week. If Bush is proved to be correct, he will go down in history, like Harry S. Truman, as a courageous leader who bit the bullet when the going was tough. If he is not, he will replace Herbert Hoover and Jimmy Carter as a failed President.


Paul M. Weyrich is Chairman and CEO of the Free Congress Foundation.

McCain's Bold Move

It's been 24 hours since McCain's public announcement that he would suspend his campaign on Thursday and bypass the first presidential debate with "The Messiah" (a.k.a. Barrack Hussein Obama) on Friday night in order to ensure his full and active participation as a U.S. Senator on the financial bailout legislation currently under consideration in the Congress.

I must admit that my first reaction was "What the heck is he doing now?!" It was an extremely bold move, especially when considering he has lost all of his post-convention bump and is back to trailing by a few points nationally in most polls. McCain has been making some serious mistakes in his campaign over the past few weeks (see tomorrow's R.C. Blog post...).

As you have probably already read in the mainstream newspapers this morning, they are profiling McCain as "scared", "overreacting", or "running away from the debate". Regarding the debate, nothing could be further from the truth. Without a teleprompter, Obama is going to have trouble speaking, let alone articulating, his positions on issues. Regardless of his actual performance, the press will tearfully praise him and compare him to Martin Luther King.

After sleeping on it, I feel a little bit better (only a little...) about the move to suspend the campaign. Only time will tell if this move was successful or a disaster in the eyes of voters, especially the estimated 18 percent in our country who have not yet made a decision on their candidate. It could be the "tipping point" of the entire campaign. For those opposed to Marxism invading our country starting January 20, 2009, I hope and pray that voters look at the move as bold and presidential.

Heritage Foundation Weighs In on Today's Financial Situation

In what some observers are calling a reshaping of Wall Street, two of the world’s largest investment banks, Merrill Lynch and Lehman Brothers, are set to disappear. Lehman has announced it will file for Chapter 11 bankruptcy protection, and Merrill Lynch was bought by Bank of America. For all the complicated financial instruments and relationships involved in the current financial turmoil, the underlying cause is still relatively simple: the bursting of the housing bubble.

One market strategist told The New York Times: “We are in the grip of a vicious circle and the only thing that to me will break that is for home prices to stop going down.” The most dangerous thing we can do right now is to assume that massive government intervention is needed to shore up home prices. After all, massive government intervention is what caused the housing bubble in the first place.

Fannie Mae and Freddie Mac were created by Presidents Franklin D. Roosevelt and Lyndon B. Johnson to make homes more affordable for Americans. They accomplish this by buying, repackaging and then selling home loans that other institutions make, thus freeing institutions to offer more loans. Contrary to what some defenders of big government assert, Fannie and Freddie were also key players in the sub-prime mortgage market. In 2004 alone, they bought 44 percent of all sub-prime securities. Every dollar that Fannie and Freddie gave to companies like Countrywide Financial for bundled sub-prime mortgages was another dollar Countrywide gave out in new sub-prime mortgages.

When President Bill Clinton took office, Fannie and Freddie were viewed as “key” to Clinton’s plans to expand home ownership. The Washington Post reports: “The result was a period of unrestrained growth for the companies. … The companies increasingly were seen as the engine of the housing boom.” As the companies grew, conservatives repeatedly warned that their size posed a systemic risk to the financial system. As Sarah Palin put it, thanks to the implicit federal guarantee of their debt, Fannie and Freddie had become too big and too expensive to the taxpayers.

But Fannie and Freddie pushed back hard, turning to friends on the left for protection. Former Walter Mondale and Barack Obama campaign adviser James Johnson led a fierce lobbying campaign to fight reform of Freddie and Fannie. Clinton administration OMB director Franklin Raines told investors when he was Fannie Mae CEO in 1999: “We manage our political risk with the same intensity that we manage our credit and interest rate risks.” Fannie and Freddie’s lobbying power over the left continues to be strong to this day. According to the Center for Responsive Politics, the top three recipients of campaign donations from Freddie and Fannie’s PACs and employees are all Democrats. From 1989 through today, Sen. Chris Dodd received $165,400, Barack Obama $126,349, and John Kerry $111,000. The Washington Post concludes: “Blessed with the advantages of a government agency and a private company at the same time, Fannie Mae and Freddie Mac used their windfall profits to co-opt the politicians who were supposed to control them.”

Nobody wants to see anybody lose their home. The current Wall Street turbulence will not settle until home prices do. But before we move to some new massive government spending effort to prop up home prices at some artificial level, we should also remember what the historical record teaches us about the unintended consequences of well-meaning market interventions.