House Republicans Obstruct Bailout Plan
House Republicans are attempting to stop the Paulson bailout plan and replace it with a proposal they've developed. Here's one of their alternative plans:
RSC pitches 'market-based' alternative to bailout, by Jackie Kucinich, The Hill: The House Republican Study Committee is set Tuesday to officially unveil its proposal to address the financial crisis through a “market-based” approach.
The conservative group ... is touting its plan as a “true alternative” to Treasury Secretary Henry Paulson’s plan to rescue the financial markets.
The RSC plan, which will be unveiled at noon, calls for a two-year suspension of the capital gains tax.
“By encouraging corporations to sell unwanted assets, this provision would unleash funds and materials with which to create jobs and grow the economy,” an outline of the proposal said. “After the two-year suspension, capital gains rates would return to present levels but assets would be indexed permanently for any inflationary gains.”
The group’s plan would also transition Fannie Mae and Freddie Mac to private companies “in a reasonable time,” seeks to stabilize the dollar, and would “suspend the mark-to-market regulatory rules for long-term assets.” ...
Obviously, selling off Fannie and Freddie to cronies in the private sector won't do anything to solve the immediate crisis, so let's focus on their main proposal for getting out of the danger we are in, a tax cut for the wealthy through a cut in the capital gains tax. Justin Fox:
[Do] Republican counterproposals floating around make any sense...
One, that of the House Republican Study Committee, seems to be a joke. It calls for a two-year suspension of the capital gains tax to "encourag[e] corporations to sell unwanted assets." But the toxic mortgage securities clogging up bank balance sheets are worth less now than when they were acquired. Meaning that no capital gains tax would be owed on them anyway. If you repealed the tax, banks would have even less incentive to sell them because they wouldn't be able use the losses to offset capital gains elsewhere. Seriously, where do these people come up with this stuff?
And even if there was a gain, a 15% cut in the tax rate for two years is not enough of a benefit to offset the high degree of risk in these markets. So this wouldn't unfreeze money markets even if there were gains instead of losses (and it wouldn't inflate asset values enough to provide much capitalization). Additionally, since it's a tax cut on all capital gains, people could benefit from transactions that didn't do a thing to help the banking sector. This is a giveaway of taxpayer dollars that uses the crisis as cover (and the tax cuts will increase the deficit, so the tax cut will have to be paid for in the future).
The economy is facing serious problems, as I've said before, peoples' livelihoods are at risk (see today's economic news). There's no excuse for holding the process hostage in an attempt to implement political agendas.
Update: Menzie Chinn discusses another proposal being floated by Republicans:
From the Justin Fox, regarding House Republicans' plan:
Eric Cantor, the Republican chief deputy whip, has a more reasonable-sounding if still pretty vague plan to insure more mortgages rather than buy mortgage securities. ....
I'm in agreement with Justin that guaranteeing even more mortgages won't be any better than the original Paulson plan.
My observation here is that the obstructionism of this group is either a manifestion of denial of reality, or a sheer indifference to the needs of their constituents -- to the extent that House Republicans purport to represent small business Main Street.
Menzie goes on to document the troubles facing small businesses - one of the few bright spots for job growth in recent years, - and concludes:
So if we end up delaying until households and small firms individually experience the credit crunch directly for the sake of ideology, well, we'll know where to locate the responsibility.
Update: Washington Monthly:
"Let The Markets Crash": Politico:
"According to one GOP lawmaker, some House Republicans are saying privately that they'd rather "let the markets crash" than sign on to a massive bailout.
"For the sake of the altar of the free market system, do you accept a Great Depression?" the member asked."
Think about that statement, and the callousness, lack of imagination, and sheer lack of concern for their country that it shows.
It staggers me.
Posted by Mark Thoma on Thursday, September 25, 2008 at 09:18 PM in Economics, Financial System |
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