Congressman Gresham Barrett on Bailout

Dear Friends,

We wanted to make sure you had a chance to read firsthand Congressman Barrett’s thoughts on the economic crisis and the proposed bailout plan. Congressman Barrett gave the testimony below before the House Financial Services Committee on Wednesday.

Thanks –

The Barrett Brigade


Congressman Barrett’s Testimony Before the House Financial Services Committee

“I firmly subscribe to the belief that “Main Street” and Wall Street are inextricably linked. Instability in the financial markets leads to instability in taxpayers’ retirement accounts, pension funds, people are concerned about if and how this will affect their jobs, student loans, car loans. And the capital that flows through our financial markets is vital to the continued success of our businesses, large and small. We should all agree that a failure of our credit markets could be catastrophic.

“However, I am not convinced that the Treasury’s plan to purchase $700 billion in illiquid assets is the most responsible way forward. And I am also not sure that this proposal gets at the root of the problem. I fear that it may only treat the immediate symptoms. While I understand that the symptoms – that is a shut down in the credit markets – are potentially disastrous, I worry that if we go forward with this plan, we will have to come back again and again with more and more money to treat new symptoms that pop up. We must instead treat the causes of the problem, which may be a long and possibly painful process.

“The whole crisis started around a type of debt: sub-prime mortgages. And it still revolves around debt. Mortgage-backed securities and other debt instruments are at the root of this problem. And we need to do something to restore access to credit, which means more debt. But the proposal brought to us involves even more debt – the government borrowing another $700 billion. Consumers, like the government, have borrowed too much. We must cut government spending. We must also institute pro-growth policies to help our economy grow, so Americans and their government can get out of debt. It makes sense that when people have good jobs, they do not need to borrow as much, whether a mortgage to buy a home or on a credit card to pay for school supplies or gasoline.

“Too much of our recent economic growth has been built on debt. We see that businesses have been massively over-leveraged, as have American consumers. If debt was at a safe level, we would have never been in this fix in the first place. When consumer spending makes up 70 percent of GDP, I think that indicates an unsustainable form of economic growth, especially when it’s financed by credit card debt and increasingly unaffordable mortgages. We need to start producing, whether it’s energy, computers, or intellectual property. I think the road-map to get us there is pretty clear: we must shore up our balance sheet, we need to reduce our capital gains taxes to spur investment, we must reduce our corporate taxes which are among the highest in the world, and we must move towards energy independence, as high energy prices are an increasingly dangerous drag on our economy. We should take this opportunity to do the right thing to help America grow in the long run.

“I appreciate that there is a panic in the markets, but policies derived from panic are never sound. I strongly believe in the superiority of free markets, and the ability of markets to correct themselves. However, the government does and has always had a role in ensuring that markets function correctly and efficiently, to keep them free of fraud and malfeasance and to minimize market failures. For example, we are all familiar with the important role that the FDIC plays in insuring bank accounts. I think that we should more actively explore other options where the government can take a role in helping the credit markets find order, but allow the free market to do most of the heavy lifting and provide more capital. One option that should be explored in greater detail is to allow private entities — private equity, hedge funds, other private partnerships — to participate in a competitive bidding process for the distressed assets that will be offloaded by banks and other financial institutions, rather than having the Treasury as the only potential buyer. This proposal could include an initial traditional auction which might include the government as well as all other qualified buyers with the assets awarded to the highest bidder.

“There is no doubt that we find ourselves in a precarious situation. But, like many of my colleagues, I think it would be a mistake to rush into a huge new expenditure. Just as the market is now panicking, the government is also apt to panic.”