AFP: On the Bailout

Americans for Prosperity (AFP)
Phil Kerpen, Director of Research

There is genuine upheaval in credit markets, and no shortage of blame to go around, starting with the government-pushed idea that nearly everyone, whether they can afford it or not, should be a homeowner. The basic model of Fannie Mae and Freddie Mac--private shareholder profits paired with taxpayer risk--was at the center of the housing bubble and collapse. The current crisis is a government failure, not a market failure, and the long-term lesson learned must not be that bigger government is the answer.

That said, the crisis is real and we need action to address it in the short-term to restore confidence to credit markets. Failure to act could ripple throughout the economy and make it impossible for many Americans, through no fault of their own, to be able to buy a home, open a credit card, or get needed financing to operate their businesses.

Taxpayers must be protected, and to the greatest extent possible private capital should be used to finance the recapitalization of the financial system. To generate private capital, suspensions of taxes on capital for the purpose of funding a rescue entity should be considered as an alternative to selling treasury bills and obligating taxpayers [Emphasis added].

The pending legislation is growing unpredictably and is hard to comment on. It has already grown from an initial four page proposal to a discussion draft of over 100 pages. AFP will assess the specifics when there is a deal.


Our biggest concern is that this government/market failure will be portrayed as solely a market failure and the alternative will be permanent political control. Do we want Congress and bureaucrats controlling our country's credit markets? Deciding who gets a car loan, or a home loan, or a business loan? Interest group politics could be injected into every aspect of economic life. We are also concerned that slush funds for left-wing political activity may be included, despite the fact that such groups and their advocacy of investment in communities that represent a credit risk are partially responsible for the crisis. We need a plan not just to avert crisis but even more importantly to have well-functioning free markets afterwards.