I voted against the Financial Stabilization Package because like the first bill a few days ago, it still misses the point.
As access to credit dries up and the threat of a sustained recession looms, the United States is in need of practical solutions. Throughout my tenure in Congress I have argued against the culture of spending in Washington. Today’s circumstances are evidence of financial irresponsibility run amok. Consumers and businesses alike have lived well beyond their means due to an over-reliance on credit, evidenced by America’s negative savings rate. No one, however, has been a bigger offender of financial irresponsibility than the federal government.
Regrettably, federal policies contributed to this fiasco by more than mere example. The Community Reinvestment Act of 1977 required that banks provide lending to those who lack the ability to pay. This legislation hamstrung Fannie Mae and Freddie Mac by stipulating that they, through the secondary mortgage market, provide financing to unqualified borrowers. Although accounting irregularities exacerbated Fannie’s and Freddie’s problems, the problem began with federal requirements that they assume irrational lending risks with an implied guarantee of U.S. taxpayer support. And the end result has been a widespread reduction in the availability of credit among banks and throughout our financial system.
As his solution to this problem, Secretary of the Treasury Henry Paulson proposed a three-page bill providing the Treasury Secretary with $700 billion to distribute at his discretion. Even with oversight, such an unprecedented figure runs the risk of doing untold damage to the value of the U.S. dollar. I fear this huge infusion of money will lead to high inflation like that of the late 70s and early 80s, and grow the national debt by another $1.3 trillion.
Rather than pass this bill, which in the end amounted to more than $800 billion in taxpayer-funded expenditures, I believe an alternative should have been considered. At the very least, an economic rescue package should have provided another method of assistance, instead of allowing the U.S. Treasury to hold the unsecured assets. In addition, I argued that any rescue package must repeal the Community Reinvestment Act, which slowly led to this overextension of credit and snowballed into disaster.
These turbulent times call for forward-thinking, not more of the errant policies that put us in this mess. Rather than provide the same old big government solutions, I urged my colleagues to think about the long-term consequences of passing this bailout without addressing the root causes – a systemic over-reliance on credit. Unfortunately, in the end, the majority of my colleagues thought otherwise.
U.S. Rep. F. James Sensenbrenner Jr. (R-Menomonee Falls) represents Wisconsin’s Fifth District.