Con­ser­va­tives rip bailouts as af­front to GOP prin­ci­ples

The Washington Times Weekly - - Politics - BY DON­ALD LAM­BRO

The Fed­eral Re­serve’s un­prece­dented $85 bil­lion takeover of Amer­i­can In­ter­na­tional Group is prompt­ing a fierce back­lash among many Repub­li­can stal­warts who openly de­cried the Bush ad­min­is­tra­tion’s re­cent string of fi­nan­cial bailouts as a be­trayal of the party’s long-held, free-mar­ket phi­los­o­phy.

Many con­ser­va­tives and at least a few lib­er­als are ques­tion­ing whether so large a com­mit­ment of tax­payer dol­lars was ei­ther wise or fair, even sug­gest­ing that it smacked of a so­cial­ist form of se­lect­ing eco­nomic win­ners and losers.

They ask: Why pick AIG and not Gen­eral Motors Corp., which has been pound­ing on Congress’ door for a help­ing hand? But most of all they com­plain that the AIG de­ci­sion thrusts the gov­ern­ment too far into pri­vate wa­ters.

“You can­not na­tion­al­ize ev­ery fail­ing busi­ness in Amer­ica,” said Rep. Mike Pence of In­di­ana, chair­man of the House Repub­li­can Study Com­mit­tee. “If gov­ern­ment now be­comes the safety net for ev­ery pri­vate en­ter­prise too big to fail, we are go­ing to end up with an econ­omy that looks a lot more like France than like the United States.”

Con­ser­va­tive leaders like Mr. Pence who cheered the ad­min­is­tra­tion’s de­ci­sion last week to al­low Lehman Broth­ers, the gi­ant in­vest­ment bank, go bank­rupt rather than bankrolling it, are now at­tack­ing the White House’s third cor­po­rate bailout of the month — spark­ing an in­tra­party de­bate.

“You can’t be for cap­i­tal­ism on the way up and so­cial­ism on the way down, and you can’t be for a wel­fare state for the rich,” for­mer House Speaker Newt Gin­grich, a Republi- can from Ge­or­gia, said in an in­ter­view with The Wash­ing­ton Times.

The White House on Sept. 17 de­fended the ad­min­is­tra­tion’s action, ar­gu­ing that the fail­ure of a com­pany as large and far-reach­ing as AIG posed a much costlier risk than the $85 bil­lion fed­eral loan.

“You have a gov­ern­ment that is will­ing to lead, act where ap­pro­pri­ate, and gov­ern to make sure that we limit broader fi­nan­cial harm to the econ­omy,” said White House press sec­re­tary Dana Perino.

But Mrs. Perino ac­knowl­edged that Amer­i­cans wanted to know why AIG was cho­sen and not other com­pa­nies.

“I can un­der­stand why a lot of Amer­i­cans would be con­fused as to why this com­pany, and not an­other com­pany,” she said.

Her an­swer: “The Fed chair­man, Ben Ber­nanke, and the pres­i­dent’s eco­nomic ad­vis­ers had de­ter­mined that there were some — some of th­ese com­pa­nies were so big that to al­low them to fail would have caused even greater harm and dam­age to the econ­omy. So the goal has been to take action where nec­es­sary to pro­mote sta­bil­ity and strength in the mar­ket­place.”

Al­though the multi­bil­lion-dol­lar loan to AIG, the global com­pany tee­ter­ing on the edge of in­sol­vency, was car­ried out by the in­de­pen­dent Fed­eral Re­serve, for­mer ad­min­is­tra­tion of­fi­cials said the bailout would not have taken place without Pres­i­dent Bush’s ex­press ap­proval. That fact trig­gered a wave of con­ser­va­tive out­rage at the ad­min­is­tra­tion and opened a deep split on eco­nomic pol­icy that strate­gists said the Repub­li­can Party could not af­ford in the midst of a tough cam­paign sea­son.

“Con­ser­va­tives are taken aback by the haste and ef­fec­tive gen­eros- ity of the ad­min­is­tra­tion. This money be­longs to the Amer­i­can peo­ple, but the cash win­dow is open,” Mr. Pence said.

A for­mer ad­min­is­tra­tion of­fi­cial told The Times on Sept. 17 that party ac­tivists were “burn­ing up the wires” with e-mails ex­press­ing dis­gust at the ad­min­is­tra­tion’s action. “There’s a firestorm build­ing among free-mar­ket con­ser­va­tives over bail­ing out AIG. A lot of them say bail­ing out a pri­vate com­pany is an af­front to free-mar­ket eco­nomics.”

Se­nate con­ser­va­tives ex­pressed sim­i­lar frus­tra­tion with the ac­cel­er­ated pace of the bailouts, which they warned would con­tinue un­less pol­icy cor­rec­tions were made.

“Amer­i­cans should be very con­cerned by the size and fre­quency of th­ese gov­ern­ment bailouts. The easy money, cheap credit pol­icy of the Fed and the guar­an­tees pro­vided by Congress for Fan­nie Mae and Fred­die Mac cre­ated a bub­ble that is now burst­ing,” said Sen. Jim DeMint, South Carolina Repub­li­can.

“Our leaders need to wake up, ex­er­cise some real dis­ci­pline, and push for poli­cies that re­duce the failed role of gov­ern­ment and re­duce taxes on Amer­i­can in­vest­ment to at­tract cap­i­tal to our mar­kets,” he said.

Some eco­nomic an­a­lysts raised ques­tions about the dou­ble stan­dard in the bailout pol­icy, ask­ing why a Wall Street in­sur­ance/in­vest­ment gi­ant like AIG was res­cued but not GM or Ford, which have laid off tens of thou­sands of work­ers.

“It’s a qual­i­ta­tively dif­fer­ent sit­u­a­tion with an in­dus­trial com­pany like GM where you won’t have a cas­cad­ing eco­nomic col­lapse [if they fail]. But there is an is­sue there as to whether we could give them a loan or some form of as­sis­tance that would al­low them to be a strong, vi­able com­pany,” said Dean Baker, co-di­rec­tor of the Cen­ter for Eco­nomic and Pol­icy Re­search, a lib­eral think tank.

Still, Mr. Baker said, “You are clearly help­ing some peo­ple to the detri­ment of oth­ers and you’re cre­at­ing per­verse in­cen­tives. If peo­ple know the gov­ern­ment will step in and bail them out, then they won’t have to use good judg­ment.”

Not all con­ser­va­tives dis­agreed with the AIG bailout. “No ques­tion we should not have put our­selves in this sit­u­a­tion where a Repub­li­can ad­min­is­tra­tion finds it­self in the un­pleas­ant and un­com­fort­able sit­u­a­tion where they have to be ac­quir­ing com­pa­nies,” said J.D. Foster, a for­mer bud­get of­fi­cial in the ad­min­is­tra­tion who is now an eco­nomic an­a­lyst at the Her­itage Foun­da­tion.

“The eq­uity and fi­nan­cial mar­kets gen­er­ally are in a state of enor­mous stress and AIG be­ing such an enor­mous player, there is a le­git­i­mate threat it could have had tremendous con­ta­gion spread­ing across credit mar­kets and into the rest of the econ­omy,” he said. “Trea­sury judged that risk was too great to run.”

R. Glenn Hub­bard, a for­mer chair­man of the White House Coun­cil of Eco­nomic Ad­vis­ers, was sim­i­larly torn. “AIG posed sys­temic risk [to the econ­omy], but we are ask­ing too much of the Fed,” he told The Times in an e-mail.

“Now the Trea­sury and Fed should not ig­nore sys­temic risk just to limit moral haz­ard. But all of this fire­fight­ing has left us with prob­lems. Ad­di­tional write-downs are com­ing. We can­not, and should not, try to pro­tect ev­ery in­sti­tu­tion,” Mr. Hub­bard wrote in the Forbes mag­a­zine Web site on Sept. 16.

AS­SO­CI­ATED PRESS PICK AND CHOOSE: Sen. John McCain and his wife, Cindy, visit a Gen­eral Motors Corp. plant on Sept. 17. An­a­lysts have noted the gov­ern­ment’s re­fusal to bail out GM.

Newspapers in English

Newspapers from USA

© PressReader. All rights reserved.