Last Saturday, President George W. Bush asked Congress for up to $700 billion to bail out mortgage assets. The plan has no accountability mechanism -- Congress would be granted no oversight, and there would be no provision to protect taxpayers' investments.
Essentially, this is a gigantic and unprecedented encroachment of the private sector by the federal government, and taxpayers are without any rights in the proposed deal.
This, of course, is coming from an administration that wiretapped phone conversations without warrant, tortured so-called "enemy combatants" in violation of the Geneva Convention and whose idea of "saving Social Security" was risking it on the tumultuous, unregulated markets that created this crisis in the first place.
Are you learning to love Big Brother yet?
Of course, a giant bailout on the scale Bush wants is inevitable and probably necessary. The upside to this, no matter what the result, is the end of the so-called "Reagan Revolution" that celebrated the non-intervention of the government in the markets. But this particular encroachment nationalizes the losses, but not the profits.
The people making the bulk of these new investments -- U.S. taxpayers -- will not profit whatsoever.Treasury Secretary Henry Paulson has argued that homeowners who took out overly expensive mortgages need to uphold their obligations without any assistance from the government. He did so knowing he was asking taxpayers to take on a huge financial burden with no profit. His ideas also go against core economic principles. Because consumers are the drivers of markets, regulations are often targeted at merchants and producers in order to protect consumers from abusive practices. To bailout irresponsible firms without giving one cent back to the taxpayers paying for the bailout, while at the same time lecturing consumers on the vices of sub-prime mortgages, is sheer hypocrisy.
Granted, the benefits of a bailout may outweigh the costs in the long run, no matter what return taxpayers see, but there are larger issues at stake than the economic benefits of these actions. Why should the government essentially take over failing companies on the backs of taxpayers while taxpayers see nothing? The only immediate beneficiaries are the companies themselves. If the government is going to nationalize large portions of the financial sector, then how can it responsibly privatize the profits these institutions make?
As the Bush administration's failed scheme to phase out Social Security demonstrated, the president is mainly interested in Hamiltonian means to achieve Hamiltonian ends -- intervention in markets to serve the interests of lenders and merchants. The New Deal consensus, however, was to use Hamiltonian means to pursue Jeffersonian ends: that a dynamic federal government could intervene in markets in the pursuit of equality, justice and liberty.
The solution to this crisis is a little more idiosyncratic. A bailout is inevitable, and as Hamilton would surely argue, it is necessary to save the economy. Nevertheless, taxpayers would be wise to flex a little muscle and demand a lot more in return than what the Bush administration is promising.