It is beyond irritating to watch President Bush, Treasury Secretary Henry Paulson, and Federal Reserve Chairman Ben Bernanke gift-wrap their $700-billion early Christmas present for financially irresponsible bankers and the overleveraged borrowers who love them. These “three wise men” consider theirs the only method to stop the turmoil roiling trading desks from Gotham to Tokyo.
“Action by the Congress is urgently required to stabilize the situation and avert what otherwise could be very serious consequences for our financial markets and for our economy,” Bernanke told the Senate Banking Committee Tuesday.
But this mother of all government interventions is unlike a long, cold hypodermic needle in the belly: an inescapable misery, but preferable to death by rabies. There actually are desirable alternatives to building socialism and saddling every American man, woman, and child with another $2,300 in unjustified federal spending.
One option is to instruct the geniuses from Fannie Mae to Wall Street to deal with it. They made this mess; they should mop it up. Cut back, sell assets, develop fresh services, or get new jobs. Absent a federal bailout, Lehman Brothers sold parts of itself to Barclay’s Bank. Facing Uncle Sam’s cold shoulder, Merrill Lynch ran into the loving arms of Bank of America. Merrill’s customers will survive, and its employees will work for B of A or seek their fortunes elsewhere.
It may take time and tightened belts, but padlocking Washington’s bailout window will offer a generation of “masters of the universe” lessons that America’s Mr. Rogers-in-Chief cannot teach: Keep your winnings, but own your losses. If you fall on your face, especially after dancing drunk on the roof, Uncle Sam may empathize, but he no longer will rush in to swaddle you in silk sheets and place your bruised head on pillows stuffed with crisp $100 bills.
Other options exist, of course — and while they lack the bracing appeal of this sort of financial Darwinism, they remain far more attractive than our current policy of “survival of the fattest.”
Rep. Jeb Hensarling (R., Texas) chairs the Republican Study Committee, the congressional caucus of idea-driven, free-market stalwarts. These practicing Reaganites seem appalled to watch their GOP president morph before their eyes from GWB to LBJ to FDR. At a Capitol Hill press conference at high noon on Tuesday, Hensarling and a dozen RSC members expressed deep misgivings about Bush’s $700-billion baby. Preferring to drown it in the bathwater, Hensarling and his band of true believers rejected Bush’s collectivism and offered their own proposals for escaping this rubble — and returning America to a path of robust growth:
Give the capital-gains tax a two-year vacation. “Suspending capital gains taxes would bring as much as a trillion dollars of capital sitting on the sidelines back into the market,” Hensarling predicts. Also, as the Tax Foundation proposes, cutting America’s 35-percent corporate tax — the industrialized world’s second highest, after Japan’s — would boost U.S. global competitiveness. Since equity prices partially reflect long-term after-tax profits, lowering corporate levies should buoy stock markets.
Denationalize, then privatize Fannie and Freddie. “These troubled financial Frankensteins — created in a government laboratory — are not creatures of the free enterprise system,” Hensarling said. “We must ultimately take their monopoly powers away and return them to the marketplace.” Why not array Fannie’s and Freddie’s loans according to mortgage holders’ surnames? They then could be divided alphabetically into 26 units and auctioned off.