CE Week #5: “A Bailout for All Our Bad Decisions?”
By Mark Sanford
Friday, September 26, 2008; A23
I am worried for our country — not so much because of the tumult in the financial markets but because of the federal government’s response and its implications.
It seems that each new crisis is met with a new answer from the government. After Hurricane Katrina, the federal government assumed roles traditionally handled by state and local governments. After the Sept. 11, 2001, attacks, the government federalized 25,000 workers through the Transportation Security Administration. The example of security-focused countries such as Israel, which elects to have that function handled by the private sector, did not matter. Now, our federal government is likely to commit three-quarters of a trillion dollars — more than last year’s Pentagon budget — to a bailout based on what happened in the credit markets last week.
An ever-expanding scope of federal commitment and power is not what made this country great. Expanded power in one place comes at a cost in other places. American cornerstones such as individual initiative and an entrepreneurial spirit — born in free and open societies with private property rights and the rule of law — have never fit particularly well within the context of an ever-growing federal government.
For 200 years, the “business model” in our country has rested on a simple fact: that while one may reap rewards from taking risks, one should also be prepared to face the consequences of those risks. Some of the proposed actions with regard to the credit market turn that business model on its head — absolving those who took too much risk, or bought too much house, from the weight of their own choices. If Congress passes the proposed bailout, we will be destined to have far greater problems in time, leaving those who are prudent in their finances to foot the bill for those who are not.
I am not writing to criticize Treasury Secretary Henry Paulson. I respect his business judgment greatly, and his unenviable task is to find a short-term solution to problems grown by government over the long term. Whether his proposals are right or wrong is less the issue than the question of where we are, as a society, in terms of having government in the business of protecting people from their own financial decisions.
Last week’s events were rooted in distressed mortgage securities whose optimistic values were facilitated by quasi-governmental entities Fannie Mae and Freddie Mac. The investment banking capital write-downs were turbocharged by the Sarbanes-Oxley Act, which did what too many laws do — it fixed yesterday’s problem. The amazing expansion of credit was fueled by a Federal Reserve offering an easy-money policy that led us right into a credit bubble. All this was made worse by the government enabling some people’s tendency to want more house than they can afford.
With that bubble popped, we will now go through a major financial de-leveraging. It will be painful. Yet to preserve what has made this country great, we need to be on guard against Washington offering endless cures to our ills.
Many of the “cures” that are soon to be offered will have one thing in common — telling us what others did wrong. Instead of listening to these, each of us as taxpayers must admonish those in Washington to get their own financial house in order. Washington is the master of creative and unsustainable finance, with $50 trillion in unfunded promises.
We will be told of bailouts that “won’t cost anything.” We should caution policymakers that this has never been the history of bailouts, and remind them of Milton Friedman’s suggestion that the capitalist system never works without loss. Investment titans recently featured in Vanity Fair trading $60 million beach homes should never be sheltered from this old-fashioned concept.
We will be told of “temporary” funds and programs. We should remind our leaders of Ronald Reagan’s words that the closest thing to eternal life is a government program.
We will be told “trust us” on pricing assets, and we should not — because no matter how pure one’s intentions, no one watches your money like you do. This makes transparency and open bidding incredibly important.
If we do these things right, we will weather the very rough patch ahead and be better for it as a country. If we do not, there will be more parallels between our nation and Edward Gibbon’s “The Decline and Fall of the Roman Empire” than we would like to imagine. The difference lies in each of our hands.
Mark Sanford, a Republican, is governor of South Carolina. He represented South Carolina for three terms in the U.S. House and was formerly employed by Goldman Sachs.
Even though we all know the bailout didn’t work, or that at the very least it didn’t pass, it’s very good among most taxpayer’s opinions that it didn’t pass through. If the bailout had passed, we would be paying higher taxes, reducing our chances at paying for basic needs and supporting a family or ourselves. Government involvement is good, don’t get me wrong, but when people make stupid mistakes in overestimating their loans or the values of those things they invest in, and then take the risk to lose all of their money, the government should leave those consequences to Wall Street and the people who made the mistakes of investing in them. If the government were to get involved, raise higher taxes, or bail them out with the American civilians paychecks, which we have worked very hard to earn, that is unacceptable. Loans are the main issue here; should we distribute loans, should we compensate for purchased items with invaluable paper, and should we give out loans assuming that they will be paid back, only to find out that they truly wont be paid back and go even further into national deficit? Yes, loans will be extremely difficult to obtain now, directly effecting students entering or graduating from college in particular, but I would rather run these difficulties of obtaining a loan than to lose over half of my paycheck in order to pay for someone else’s mistake. The government needs to find a new system in opposition to a bailout once the outcomes of the stock market is better evaluated.
This article is very intriguing, especially because of the point of view. Mark Sanford is a Republican and he served in the House of Representatives and he worked for Goldman Sachs, who has recently been in financial trouble. He seems to think this bailout is a bad idea, judging from the tone of the passage and the way he keeps saying “We will be told”.
It is so true though (about “we will be told”), the government is so narrow minded about just getting the bailout passed and reassuring the American people it won’t harm them financially that they may not be looking at the bigger picture. I’m not saying America should do nothing because our economy could go down the toilet if something isn’t done, but we need to consider the effect of putting ourselves even further in debt will have on our country.
I really like the statement, “capitalist system never works without loss” because it is so true. The stock market is a roller coaster. It can’t just continue to rise and rise because that’s just not the way it works. When it falls a bit, usually we can rest assured it will be up again the next day. This time that may not be the case; although if the economy does go into a depression, eventually we have to come out of it.
To be honest the whole concept of this bailout is completely ridiculous. CEO’s of large banks make stupid choices and boom the government has to help them out of it, but it really isn’t the government’s funding, it is the taxpayers. Then guess what happens, banks start to keep a tighter hold on lending money (which they should do for people who have bad credit) and the next thing you know us senior, who happen to be going off to college next year, can’t get a loan for our education. Is it really fair that some arrogant CEO’s decisions should affect our future?
“If Congress passes the proposed bailout, we will be destined to have far greater problems in time, leaving those who are prudent in their finances to foot the bill for those who are not.” Mark Sanford is right. The bailout will only help us now not later. Our government needs to do something that will not only affect us today, but will also affect us tomorrow and the day after for years to come. We keep having problems, natural and political, and the only solution that the government keeps coming up with is to throw money at the problem no matter what it is or who is to blame. “Expanded power (spending money) in one place comes at a cost in other places.” “We will be told of “temporary” funds and programs” that will fix our problems. The truth is that there is no such thing as temporary fund or a temporary program. “The closest thing to eternal life is a government program.” Our government is doing poorly with the situations that keep appearing. According to Sanford we might collapse if we do not do something as the people. It is our job to stand up and face the government. It is up to us to not let it fail. We need to take responsibility.
I really agree with Nicole on this one. I think that Americans made their own beds by overestimating loans and spending the money they didn’t have, and now we have to lie in those beds. I would also rather have to try harder to get a loan then have to give up half of my paycheck to fix a mistake made on behalf of someone else. The world is not fair, but this would be the fairest thing to do in my mind. Americans who decide to mess up their credit by making purchases that they shouldn’t have or overspending on items just shows a lack of responsibility. I get paid minimum wage at a job where I get about 15 hours a week. My paycheck is small enough without having to have that cut in half because my neighbor went out and got a loan that he knew he couldn’t pay back. It’s the carelessness of the American people that got us into this mess and it’s our commitment of living in this country to try to help out our economy, even if that means voting for the presidential candidate that will benefit us the most in that aspect along with others.
Well to start out we all know now that the bailout failed to be passed in the House with surpassing numbers. I think that the government should help us out with some things, but not every little problem that comes up. We can’t as nations always expect the government to be there every time a problem comes up. Sometimes we need to just handle things for ourselves. Because every time the government gets involved, huge amounts of money are spent and the country goes farther into debt. I am curious as to why entrepreneurs have never fit within the context of our growing federal government. Is it because the government isn’t involved or something?
We should really consider the statement, “that while one may reap rewards from taking risks, one should also be prepared to face the consequences of those risks.” If this new bailout does get passed, who is going to be the ones the face the consequences of it in the future? More importantly, what are those consequences going to consist of? This could end up just causing the government more issues later on. I don’t think one man should have the burden of finding a short term solution to fix our economic problems from government. And why should the government always have to protect people from their own financial decisions and problems? Why are we being told that the bailout won’t cost a thing? Nothing ever comes totally free.
To begin, I am not going to argue for or against the bailout because frankly I am not informed enough to complain about something in which I do not know what it entails. I do agree with the author, Mark Sanford’s, statement, “I am worried for our country — not so much because of the tumult in the financial markets but because of the federal government’s response and its implications.” I agree with this statement because it is true that the federal government as of late has been constantly given the opportunity to intervene in the state’s affairs and gain more powers. And as Ronald Reagan once said, the “closest thing to eternal life is a government program.” From a conservative point of view this is one of the worst things to hear about a policy that is being past. And as for responsible realistic Americans paying for the risk taker’s mistakes, I do not agree with that at all. Though I agree we need an answer to our current financial situation, the weight of the world should not be put onto the shoulders of people who have worked hard and saved for years. In all reality I think the problem is not the bailout, I think the real problem is that we, as Americans, are losing more and more of what makes us American with every tragedy that occurs.