I ran across an article printed in the Gwinnett Daily Post by our representative John Linder. I thought he did a great job of explaining this $700 Bailout in practical terms.
Government should stay out of capitalist market
Gwinnett Daily Post – October 5, 2008On Sept. 30, 1999, The New York Times published an article about the decision by Fannie Mae Chairman Franklin Raines to loosen credit requirements for getting home loans. The story said that “under increasing pressure from the Clinton Administration to expand mortgage loans among low- and moderate-income people and … pressure from stock holders to maintain its phenomenal growth in profits,” credit worthiness was not to be considered.
Originators of mortgage loans were instructed to make more loans. They were told by bank regulators to not worry about the ability to pay. Fannie Mae will take the loans off their balance sheet and sell them into the global economy, the regulators said. No one would lose.
Guess what? We have some losers. They are called taxpayers.
Government always feels it must do something.
This is something. We will bail out the investors who bought those mortgage-backed securities – investors who examined their investment no more closely than the mortgage originator or Fannie Mae examined the loan.
As I am writing this, I am listening to the debate on the “bailout” bill on the floor of the House. Let me try to reduce this to terms we can all understand.
Grandma took her 1994 Buick to Joe’s shop to look at her transmission. He repaired the transmission and billed her $700. She said she would pay him at the end of the month. Joe took her invoice to Apex Financial and they gave Joe $630, keeping 10 percent for their services. The transmission still was not working and Grandma took the car back to Joe. Joe had gone out of business and the shop was closed. Grandma didn’t know what to do, so she called her senator. The senator responded by passing a bill that forced the taxpayers to give Apex Financial $700.
This did not help Grandma and it did not keep Joe in business. But, hey, at least government did something.
We in Congress tend to think that we can somehow repeal the laws of economic consequences. We cannot. What we are doing at this moment is voting to insinuate the decisions of the federal government into the capital markets. We are picking winners and losers. Does anyone believe that we can ever get the government back out? France has tried this and failed.
We could put the 10,000 brightest people in the world in a room to attempt to find the right solution to our economic problems and they still could not make a decision as wise as the result of millions of tiny decisions made every day in the market. Markets are efficient. They punish bad behavior and reward good behavior.
Government intrusion in those markets only distorts them. You will find my name in the “no” column.
Rep. John Linder, R-Duluth, has served in the House of Representatives since 1992.