It has been said that there are no atheists in foxholes. There are also no conservatives in economic meltdowns. In the face of another Great Depression, Democrat and Republican leadership is indistinguishable: Both are aggressively socialist. Beyond Wall Street and Washington, Americans are rightly furious. It is not just the shocking new tax liability, however, driving Americans over the edge.
In an ever-more-competitive global economy, we are choosing to load ourselves with more debt and regulation. We will pay for this in the form of lower growth.
And it’s Republicans who are bringing back the Era of Big Government. The New Deal set off a trend of higher taxes and more government that only got worse. Similarly, this generation will find it difficult to explain why the same paternal state we called upon to rescue Wall Street can’t bend down a little lower to provide government-paid health care, energy subsidies, and every imaginable social service.
So is this the time to pull our nation back from an economic precipice? Yes, for America cannot afford to play Russian roulette. If Congress votes down this bailout and our economy collapses, Americans will be at Washington’s door with torches and pitchforks. Remember when Republicans shut down the government? Imagine if Republicans shut down the economy. There is a liquidity crisis. Whether with loans or a bailout, our government must meet it.
Now, we must account for decisions made long ago. Washington’s dream was an America where every person could borrow enough money to buy a home. The Community Reinvestment Act, signed by President Carter and strengthened by Bill Clinton, encouraged bankers to loosen underwriting standards to “meet community needs.” Communities, of course, were not the ones obliged to pay the loans back.
As one former banker recently shared, “It is easy to recall sitting around bank board meetings in the last decade where it became a badge of honor for bankers to give loans to those who could not afford them. From that came lesser rates, larger loans and chicanery galore.” With this came the perverse incentives of sub-prime lending: loans without down payments, loans without equity, loans without verification of income or assets. New lenders like Countrywide lent money without tempering the risk with savings deposits.
It worked, as long as the value of the underlying asset, the American home, kept increasing: If a homeowner couldn’t pay the mortgage, he could sell the home for a profit. In 1997, Bear Stearns started securitizing these poisoned loans, packaging and reselling the tainted candy in large, Wall Street-sized containers. More Wall Street money chased risky loans and more speculative borrowers chased easy money.
When government regulation creates perverse incentives that disrupt the normal workings of an economy, it finds itself obligated to create equally perverse disincentives and regulations to limit the side effects of their good intentions. Government intervention attempts to repair its disruptions with even more regulation, an endless hall of mirrors from which policymakers can find no exit. Now we find ourselves socializing capital markets, led by a Republican president.
America’s great challenge and opportunity is still growth in a global economy. Before us lies a perilous but promising new economic frontier. If we compete there, America will be renewed and our economy will be strengthened again. For that we must open markets, reduce taxes and regulation, and end the old Era of Big Government, not embrace it.
Tomorrow we renew our commitment to less government and a growing American economy. Today, however, we pay for Washington’s utopian wishes. That is the tyranny of good intentions.
Washington ordered this meal long ago. The bill has come due. There is no choice now but to pay.
— Alex Castellanos is a Republican media consultant residing in Alexandria, Virginia.