Garbage Dump or Gold Mine? Make Up Your Mind, Mr. President

A glaring contradiction haunts President Bush’s sales pitch for his $700 billion Wall Street bailout.

In his White House address to the Nation Wednesday night, Bush said, “Under our proposal, the federal government would put up to $700 billion taxpayer dollars on the line to purchase troubled assets that are clogging the financial system.”

But just seconds later, Bush continued: “… the value of many of these assets will likely be higher than their current price, because the vast majority of Americans will ultimately pay off their mortgages.” He added that once “markets return to normal… money will flow back to the Treasury as these assets are sold. And we expect that much, if not all, of the tax dollars we invest will be paid back.”

So, which is it?

If Bush wants to spend $700 billion of taxpayers’ hard-earned money to build a garbage dump, he and his minions should stop claiming that the American people eventually will be able to sell these assets at higher prices, likely recouping much of the outlays required to purchase them and possibly even generating an overall profit.

If these soiled assets really are rubbish, let’s learn that now and collectively disabuse ourselves of the notion that we ever will see these $700 billion again.

If, on the other hand, Bush is correct and this $700 billion expense eventually could yield $700 billion or more in revenue, then why is Uncle Sam involved in this situation at all? If this is not a garbage dump but a gold mine that may take a few years to pry open, why can’t Wall Street firms, banks, and other institutions wait for the economy to improve, and then cash in on this supposed bonanza?

“When somebody says this is going to cost the taxpayers $700 billion to $1 trillion, they are being dishonest when they make that statement,” Senator Judd Gregg (R – New Hampshire) declared on the Senate floor yesterday. “And, in fact, in a number of instances, the taxpayers may come out of this by making some money because we will replace other investors. And if those investments pay off, we’ll make a little money.”

“Over a two- to three-year period, the government is going to make money, and this thing won’t cost a penny,” predicted Bob McTeer, former president of the Federal Reserve Bank of Dallas. Speaking Friday morning at a joint meeting here of the Atlas Economic Research Foundation (with which I am a senior fellow) and the National Center for Policy Analysis, McTeer said that things would begin to improve “when the system gets unclogged and trading begins.”

If Bush, Gregg, and McTeer are right, this so-called “toxic debt” looks pretty tasty. In that case, the message to Wall Street should not be “bailout,” but “patience.” Until these assets eventually improve, it might be wise to allow banks to describe them on their books the way hospital patients are listed — critical, serious, or stable — until they are well enough to be released and sold into a healthier economy.

It likewise might help to suspend or reform controversial new “mark-to-market” accounting rules that often require institutions to value viable mortgage-based assets at the lower prices paid for non-performing loans. Some “losses” on banks’ books are due to these new regulations, not necessarily because homeowners have abandoned their debts.

While President Bush makes up his mind on whether this debt is toxic or merely dormant, House Republicans deserve fulsome praise for resisting Bush’s latest socialist power grab. Among others, Republican representatives Eric Cantor of Virginia, Indiana’s Mike Pence, Wisconsin’s Paul Ryan, and Texas’ Jeb Hensarling have offered at least a dozen alternatives to Bush’s boondoggle. These ideas involve less government intervention than Bush demands. In most cases, far less. Among other things, these members of the pro-market Republican Study Committee offer dramatic tax relief as one way out of this mess.

Here’s an idea: Rather than spend $700 billion, why not dedicate $641 billion to cancel the corporate tax for the next two years? President Bush would be better off reviving the economy with that pro-growth policy, rather than cremating the few remaining shreds of his legacy with a pathetic impersonation of Franklin Roosevelt.