Senate Republicans right to oppose "crony capitalism"

The Wall Street Journal has a timely article that comes out in the middle of the current debate over the Democrat's proposed new regulations for banks and investment firms...which Republicans have argued will only serve to institutionalize "bailouts" of such companies by taxpayers, rather than letting them fail.

The complaint is that, when companies have a specific promise that, if they start to go under the government will come in and bail them out, they act differently.  They take more risks, and other actors in a free market treat them differently, (because they've got that nice government "insurance policy").  In other words, "crony capitalism".

The Journal article is interesting because it points out that, out of all the financial institutions that received bailouts (under the TARP program), most of them have paid almost all of the funds back...except for the "Government Sponsored Entities" (GSE's) of Fannie Mae and Freddie Mac...which were set up by Congress...allowed to play in the free market as quasi-private actors, but with the taxpayers' line of credit.  They're still in the hole for almost $380 billion...and the Treasury Department even went so far late last year as to remove their previous $400 billion dollar credit limit.

From the article:

The story is all too familiar. Politicians in positions of authority today had an opportunity to prevent this fiasco but did nothing. Now—in the name of the taxpayers—they want more power, but they have never been called to account for their earlier failings.

One chapter in this story took place in July 2005, when the Senate Banking Committee, then controlled by the Republicans, adopted tough regulatory legislation for the GSEs on a party-line vote—all Republicans in favor, all Democrats opposed. The bill would have established a new regulator for Fannie and Freddie and given it authority to ensure that they maintained adequate capital, properly managed their interest rate risk, had adequate liquidity and reserves, and controlled their asset and investment portfolio growth. ...

The date of the Senate Banking Committee's action is important. It was in 2005 that the GSEs—which had been acquiring increasing numbers of subprime and Alt-A loans for many years in order to meet their HUD-imposed affordable housing requirements—accelerated the purchases that led to their 2008 insolvency. If legislation along the lines of the Senate committee's bill had been enacted in that year, many if not all the losses that Fannie and Freddie have suffered, and will suffer in the future, might have been avoided. ...

Note that the risk Fannie and Freddie were engaging in (backstopped by our money) was due to a government mandate...which means a political mandate. 

And which party do you suppose was pushing the GSE's to loan (our) money to people who couldn't afford to pay it back...and didn't want to reign them in?  Read on!

Why was there no action in the full Senate? As most Americans know today, it takes 60 votes to cut off debate in the Senate, and the Republicans had only 55. To close debate and proceed to the enactment of the committee-passed bill, the Republicans needed five Democrats to vote with them. But in a 45 member Democratic caucus that included Barack Obama and the current Senate Banking Chairman Christopher Dodd (D., Conn.), these votes could not be found.

Recently, President Obama has taken to accusing others of representing "special interests." In an April radio address he stated that his financial regulatory proposals were struggling in the Senate because "the financial industry and its powerful lobby have opposed modest safeguards against the kinds of reckless risks and bad practices that led to this very crisis."

He should know. As a senator, he was the third largest recipient of campaign contributions from Fannie Mae and Freddie Mac, behind only Sens. Chris Dodd and John Kerry.

And yet, here we are with a President and Congress pushing hard for a financial "reform" bill that will risk institutionalizing such bailouts and put taxpayers on the hook for more.  In this case, (since there are no visible low income housing policies involved), one wonders why?  The answer (just as with ObamaCare, etc., etc.) is control. 

When you control the money, you control the activity.  Just as it virtually "controlled" the housing market by having two players in the game backstopped by a government credit line, the government will gain more control over the financial sector.

Senate Republicans are right to oppose the bill.