- The Washington Times - Thursday, October 23, 2008




Recently, in a series of incredibly bold moves over the course of a week, the Federal Reserve and U.S. Treasury took historic steps to intervene in the American economy. And, the American public barely batted an eye.

First, the Fed took the nearly unprecedented step of buying up unsecured debt. While the Fed hasn’t announced how much commercial paper it would buy through this program, it did say it would be “substantial” and that $1.3 trillion of the $1.75 trillion in outstanding commercial paper comes from eligible issuers.

The next day, the Fed cut interest rates for the fifth time this year. Only days later, Treasury came within inches of literally nationalizing banks, announcing plans to purchase equity stakes in a “broad array” of private banks. This, under an obscure authority granted in the $700 billion bailout bill only signed into law a week earlier.

You will recall that the day that the initial bailout legislation failed to pass in the House of Representatives, the Dow took a tumble and those who pressed for its passage prophesied that Armageddon would befall us if we didn’t act quickly to instill confidence in Wall Street. And, you will recall that on the day Congress did pass the bailout bill, the tumble continued - and it has whipsawed ever since.

But, it’s not just Wall Street that is without confidence. The American people are quickly losing confidence in their government’s ability to preserve their well-being. And, many Americans are fed up and angry. They were told that our nation’s economy was at the edge of a cliff and that the only lifeline to safety was to give Secretary Hank Paulson a blank check of $700 billion taxpayer dollars to bail out Wall Street. Well, they got their blank check and our economy is now dangling off the side of that cliff. While we cannot go back and undo the bailout debt that we have laid on Americans, Congress must return to work to at least reduce the precedent we have established and start to labor in earnest on real financial-services-sector reforms.

First, we must restructure the mortgage monsters, Fannie Mae and Freddie Mac. These Government Sponsored Enterprises (GSEs) have grown too big and far too undercapitalized. They made risky decisions - at Congress and the administration’s behest - and peddled soft assets to Wall Street giants, who likewise made risky decisions. They lacked a moral compass because of an implicit taxpayer guarantee of their risk. Washington’s actions of late have made that guarantee explicit and there can be no turning back. The American people cannot be asked to bail out Fannie and Freddie again.

I opposed the bailout - both times when it came before the House. It was a bad deal when it was first presented to Congress and it grew into a worse deal the day it passed. It was the wrong remedy for what ails our economy. It failed to address the credit crunch - a diagnosis proven by the Fed and Treasury’s actions in the week following the bailout’s passage. Furthermore, by failing to address the root cause of the financial-services-sector meltdown - the risky behavior of the GSEs - the bailout bill only set us up for a relapse.

I supported an alternative to the bailout that would reform Fannie and Freddie while maintaining some allegiance to its legitimate homeownership goals. It would require the GSEs to “pay an appropriate risk-based amount for the government guarantee, subject them to state and local taxes and accurate SEC filings like every other private for-profit corporation, and provide for the phase out of their GSE charters.” This is the ultimate reform of Fannie Mae and Freddie Mac.

Congress must also restructure the Federal Reserve. I’m working on legislation that would scale back the unrestricted powers of the Federal Reserve Board. Due to a Depression-era law, the Fed is empowered to become the lender of last resort so long as five of the Board’s governors consent to the decision. There is absolutely no Congressional oversight of this virtually unmitigated power, and not one check or balance via the president or Treasury. All it takes is the approval of five unelected people who agree on what constitutes “unusual and exigent circumstances” in the marketplace and taxpayers - and their pocketbooks - are on the hook again. That is not what our Founding Fathers had intended for America.

Like I said, the people are frustrated and fed up. Washington had the chance to stand on the side of the taxpayer, and it didn’t. And, now, hardworking Americans are left to wait and see what other obscure powers are unearthed from this bailout bill until Congress returns in January to work and can create long-term solutions for our nation’s economy. Let’s hope that in the meantime, our economy doesn’t lose its grip and fall off that cliff.

Rep. Michele Bachmann, Minnesotan Republican, is a member of the House Financial Services Committee.

Sign up for Daily Newsletters

Copyright © 2019 The Washington Times, LLC. Click here for reprint permission.

The Washington Times Comment Policy

The Washington Times welcomes your comments on Spot.im, our third-party provider. Please read our Comment Policy before commenting.


Click to Read More and View Comments

Click to Hide