In the debate on the failed $700 billion solution to our nation's financial crisis, two women in the House of Representatives presented remarkably opposite analyses of the cause of the credit crunch problem and the best solution to it. One attempted to scare the voters and the other to inform and calm the voters. Speaker of the House Speaker Nancy Pelosi, speaking for the Democrats clearly tried to use the credit crisis as a political tool to win the White House and increase Democrat control of Congress this election year. She said the $700 billion was "a staggering number, but only a part of the cost of the failed Bush economic policies to our country, policies that were build on budget recklessness."
According to Pelosi it was President Bush's "fiscal irresponsibility, combined with an anything goes economic policy, has taken us to where we are today. They claim to be free market advocates when it is really an anything goes mentality. No regulation, no supervision, no discipline. And if you fail, you will have a golden parachute and the taxpayer will bail you out." Pelosi's name-calling election year attack was immediately followed by freshman member, Michele Bachmann, a Minnesota Republican, wife and mother of five, who gave an actual analysis of how this situation happened so quickly that within days several major financial institutions were declaring bankruptcy. It was the best explanation I'd seen of how the problem developed and why major financial institutions were bankrupt within days.
The meltdown, as I pointed out last week, involves regulations that Democrats put in place during the Clinton Administration which require lending institutions to lend to people on welfare or with poor credit 100% of value mortgages. There also is an accounting regulation involved in the meltdown that led to the bankruptcies. Newt Gingrich brought this up on September 22nd in an article entitled "We should suspend this destructive accounting rule immediately.
Following Pelosi's attack on President Bush and the Republicans, Rep. Bachmann responded by calmly explaining the current credit crunch: "I want to thank the Speaker of the House for making the case why so many Republicans are unwilling at this point to sign on to this legislation that's before us. However, I do believe also, Madam Speaker, that Democrats and Republicans are both committed to finding a way out of this financial challenge, and we think we have one. "But the answer we believe needn't cost taxpayers $700 billion.
"The problem is a lack of credit for creditworthy people, people who are fully capable of paying that credit back. Why is there a lack of credit? It's because the SEC has mandated accounting rules that have forced banks to value assets well below their actual economic value. "So what does this mean? It means that if a bank has $1 worth of deposits, they can make $10 in loans. But if accounting rules are forcing banks to devalue assets, $500 billion, then that means that banks are prohibited from making $5 trillion worth of loans. And that's why we have a credit crunch.
"Unfortunately, the bill that we have before us today doesn't even address this credit crisis. Let's first direct the SEC to suspend mark-to-market accounting rules for assets for which there is no market. That only makes sense. Second, stop naked short selling. Then the FDIC can issue net asset certificates that saved banks during the S&L crisis and the FDIC can write a letter to United States banks telling them in the absence of fraud that the FDIC will fully back all deposits for first-tier creditors.
"Let's try these practical solutions before we pull the trigger on a $700 billion bailout that doesn't even address the underlying program."
I have not found any news source so far that reported Rep. Bachmann's suggestion of an alternative to the $700 billion effort to socialize the credit industry. The bill failed to pass by a vote of 205 yeas to 228 nays, following a near unanimous media announcement that it was agreed to and would pass. Forty percent of the Democrats voted "no" along with a most of the Republicans.
Bachman's statement following the vote noted: "As I've stated previously, this plan was rushed, unworkable, and short-sighted. A majority of House Republicans have parted ways with President Bush on this plan and we demand that alternative proposals be put on the table. There is universal agreement that this plan was bad, but its supporters claimed it was the only option.
"There were alternatives available, but Speaker Pelosi and the Administration chose to ignore them and used every parliamentary trick in the book to stifle debate. Now, they will have to listen to the voices of American taxpayers who refuse to open their checkbooks to Wall Street to write a $700 billion check with no strings attached."
As I have previously pointed out, after the collapse of the American economy that occurred in 1929, the year I was born, it took 25 years before the stock market regained its September 3, 1929 high of 381.17. The reason why it took so long was because of efforts made during the election year of 1932 by Franklin Delano Roosevelt and the Democrats to scare the American people by blaming the Republicans for causing the crash, as Pelosi is attempting in 2008.
It worked so well that Democrats controlled both the White House and Congress for the next 25 years. It appears, at this point, today's voters have more than one or two sources of information and they hopefully are not as gullible to that tactic as my parents' generation was during the 1930s.