Out of Control Policy Blog

Look out for more bailouts

Don't be surprised if a second bailout plan is presented by year's end. House Speaker Nancy Pelosi has said she wants Congress to come back into session in November after the election to develop a bailout for Wall Street. This second economic relief plan would be more like the stimulus package from this Spring and would be, in the words of Barney Frank, to "give the middle-class and the average citizen the same kind of relief that we try to give the financial sector."

John McCain has suggested $300 billion for buying up mortgages and renegotiating their price to stabilize housing values. Pelosi, Frank, and other democrats want $150 billion for unemployment benefits, food stamps, and local level infrastructure projects--construction projects such as rebuilding bridges and roads. But even though Republican No. 2 in the House Roy Blunt is in favor of a Main Street Bailout that "makes sense" he drew a line at "huge public works projects" and state bailouts. Count on a battle if Pelosi pushes her agenda... though the battle may just be over how much more taxpayer money to spend and not on if it should be spent at all.

During the debates over the Wall Street bailout two weeks ago, several Representatives and Senators stood up and demanded that, at some point, Congress take up a relief package for American citizens who own homes, but innocently can't pay their mortgages, and have lost savings in the Wall Street crash. However, as Saturday Night Live so eloquently noted in their skit mocking Congressional defense for the bailout, many of those mortgage holders affected are either fiscally irresponsible individuals or housing investors who didn't sell in time.

Many people with subprime mortgages never intended to pay for them, but would buy a home for a couple years and then sell it before the adjustable interest rate went up. This worked for a while, until the home buying market was saturated and people go stuck with their homes. In terms of investors, there are lots of people who had too much in one bank account and lost money above the $100,000 limit. Putting money in a spouse or child's name, or just having several accounts at different banks were all legal and viable strategies if one wanted to keep over $100,000 in checking/savings accounts. And for the investors losing their shirts, why is it the taxpayer's job to fund their losses?

On the bright side, Senator Lindsay Graham said on Face the Nation, "I think it goes along the lines of now's the time to lower tax rates for investors, capital gains tax, dividend tax rates, to make sure that we can get the economy jump-started. It will be a very comprehensive approach to jump-start the economy by allowing capital to be formed easier in America by lowering taxes."

How Congress proposes to use tax money to "help" the "real innocents" out there would be an interesting debate (read potentially horrifying debate) if Congress comes back for another session before the 111th Congress takes office in January. Whether or not anyone in power will really stand up for free market economics remains to be seen.

Anthony Randazzo is Director of Economic Research


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