- The Washington Times - Monday, April 26, 2010

ANALYSIS/OPINION:

Americans watched in horror in 2008 as their tax dollars were used to prop

up, bail out or otherwise broker the rescue of one Wall Street institution after another. That year, we were promised that if we just voted for Democrats, they’d take care of those big, bad banks and nothing like this would ever happen again. Two years later, America is reading the fine print.

And the fine print is revealing: Democrats are setting taxpayers up for massive and unfettered bailouts. Exhibit A, buried on Page 506 of the 1,700-page House-passed bill, demonstrates the perversity of Democratic notions of “restraint” in the use of currently unlimited federal bailout power. The provision “limits” the Federal Reserve to $4 trillion - $4 trillion - for bailing out “an individual, partnership, or corporation” facing a “liquidity event” that could “destabilize the financial system.”

Ronald Reagan famously remarked, “The nine most terrifying words in the English language are ‘I’m from the government and I’m here to help.’ ” Exhibit B is the perfect example: a new, benevolently named “consumer protection” bureaucracy. For Democrats, there can never be enough “protection” of the American people by nanny-state bureaucrats in Washington. The new agency would have power, independent of the many other regulatory agencies alreadyin place to protect consumers, to control all financial products in the marketplace. In other words, bureaucrats would dictate what kind of small-business loans you can get, your interest rates on a car loan, credit card terms, and so forth (except, of course, for lobbyist-finagled exemptions for pawn shops and casinos, among others). Senate Democrats also would empower their regulatory buddies (the same ones asleep at the switch last time) to create a new, unchecked, unaccountable committee of bureaucrats with power to take down, take over or break up every job-creating company in America.

Your government nannies would be especially vigilant to protect you from risk-based pricing, meaning they don’t want banks charging interest rates based on a borrower’s credit score or another indicator of ability to repay. Isn’t that the exact reason for the housing crisis at the root of the financial meltdown of 2008 and the ongoing recession? It was Rep. Barney Frank of Massachusetts and Sen. Christopher J. Dodd of Connecticut, together with Jimmy Carter and Bill Clinton, who lured millions of borrowers into mortgages they couldn’t afford in their misguided, utopian efforts to make everyone a homeowner, whether the borrower could afford it or not. Are we supposed to trust these “consumer protection” credentials of Washington bureaucrats and backroom dealers?

As with other Democratic policies, poor and middle-class families will suffer the most under this economically illiterate crackdown. Those who have struggled financially in the past or don’t have many assets to borrow against could be shut out of the loan market. Under the Democratic plan, lenders will simply eliminate products designed to serve such borrowers and stick with safer, wealthier customers. Even with a good credit history, lower-income borrowers may be priced out of loans because of rate increases resulting from these regulations. For a preview, look at the recent result of congressional “help” in the credit card industry. Interest rates shot up for all borrowers to offset costs of new prohibitions against charging only high-risk borrowers higher rates.

American consumers on the hunt for credit to grow a small business, buy a house or send a kid to college need more information, not more “protection.” To keep credit costs low, we need more competition among lenders for our borrowing business, not more restrictions on what and how we can borrow.

But that’s not all. Exhibit C on why Democrats are getting financial reform wrong is about a glaring omission. The Senate Democrats’ “reform” bill just ignores the massive and ongoing taxpayer bailouts of Fannie Mae and Freddie Mac, the government-coddled entities responsible for bundling shady mortgages underpinning the risky derivatives that tanked Wall Street. The House bill is worse than silent - House authors quietly added a specific exemption for Fannie and Freddie from the (flawed) Democratic scheme to prevent bailouts. These government-chartered companies have been in the fiscal toilet for years, run by Democratic Party hacks raking in tens of millions of dollars in salaries and bonuses. The Fannie and Freddie bailout will cost taxpayers hundreds of billions of dollars - far more than the AIG bailout. Fannie and Freddie control half the mortgages in the United States, so their insolvency and mismanagement affect every other financial institution trading mortgage-backed securities. Ignoring Fannie and Freddie signs up the taxpayers for more catastrophes and more bailouts well into the future.

There is a better way out of the Democrats’ bailout bonanza, and congressional Republicans offer America a better choice in November: (1) Send failing institutions to bankruptcy court, rather than the bailout window at the Fed; (2) make more and better information available to consumers so that they can better judge loan affordability; and (3) end the Democratic protection racket for Fannie and Freddie rather than leeching off the taxpayers year after insolvent year.

Michael S. Steele is the chairman of the Republican National Committee.


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