David Thomas: Wall Street Needs A Workout Not A Bailout
By: Senator David Thomas
All over America, people are holding their breath, crossing their fingers, and saying prayers for economic health while hoping Congressional action and Wall Street’s failed financial institutions do not make matters worse.
Throughout this mess, the American people have not had an adequate explanation as to what caused the financial meltdown. If Washington wants to use our tax money to bailout Wall Street, they must first provide proper explanation.
As Chairman of South Carolina’s Senate Banking and Insurance Committee, I can tell you that this problem has been lingering for some time and that we do not need a “bailout” or a rescue plan, but instead fiscal fitness and a workout for Wall Street.
The root of this problem is twofold. First, the federal government put in place some wretched policies. Secondly, some banking institutions practiced these bad policies. In the 1990s, Bill Clinton and Democrat friends like Barney Frank forced Freddie Mac and Fannie Mae to take up bad lending habits and ease credit requirements to increase home ownership among low income consumers.
These federal policies prompted sub-prime lending while Freddie Mac and Fannie Mae paved the way for this collapse to occur. This alone provides ample reason why the government is the last entity that should own paper as part of solving the mortgage crisis and why the Secretary Paulson’s bailout package is fundamentally flawed.
In South Carolina we saw how bad these loan practices were doing and took action. In 2003 we passed legislation curbing predatory lending practices in our state. Ironically, groups representing many of the failed financial institutions called our action unfriendly to their business. However, consumer advocate groups have credited this legislation with helping to reduce foreclosures in our state.
Had Congress taken action similar to ours in the state legislature, foreclosures would be reduced across the country and some of the national migraine caused by the markets would not exist. Lenders had no business making mortgage loans to people who could not afford them. When these financial institutions took up such practices, put in place by Freddie Mac and Fannie Mae with the approval of Congress, they essentially turned Wall Street into a Las Vegas casino and made Main Street their slot machine.
During this time, Congress did not take any preventive measures, and exacerbated the problem by supporting slack standards and cheering on banks that offered risky loans to sub-prime borrowers. This occurred while greedy lenders took huge risks in pursuit of large portfolios and extra padding for their pockets, as if it were a game of Monopoly.
The bailout is merely a “get-out-of-jail free card” for some on Wall Street and does a great disservice to the well managed banks that have exercised sound lending practices and the American public, which did nothing wrong and should not be held liable for the bill from Wall Street’s Las Vegas adventure.
Unfortunately, the bailout is the type of overnight band-aid fix that is all too common when politics gets in the way of progress. Instead of fixing the problem, some prefer perception to reality and love nothing more than thinking our tax dollars grow on trees.
While House conservatives prohibited passage of the first bailout bill, liberals in the US Senate has passed an $810 billion bailout. Instead of wasting our tax dollars, Congress should find ways to improve the markets by increasing liquidity, reducing red tape, and fixing the fundamental problems that caused this crisis.
For now, we can only hope and pray that Washington sees the light of day and finally realizes that free markets and capitalism built our economy and will ultimately save it, while government programs cause economic problems and will merely continue to derail it. Let’s hope, Washington wakes up and provides Wall Street with a workout, not a bailout.