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House should be praised for stopping the socialization of America's financial industry

For Immediate Release. October 1, 2008The House of Representatives on Monday, September 29, 2008, by a vote of 228-205 (133 Republicans and 95 Democrats voting against the measure) rejected Emergency Economic Stabilization Act of 2008 (H.R. 3997), the Bush administration's $700 billion bailout plan.  Those representatives that stood up for principle and free market capitalism disregarding the pressure from Speaker of the House Nancy Pelosi (Democrat-California), House Minority Leader John Boehner (Republican-Ohio), and the Bush administration should be applauded.  “The problem with the current financial bailout plan is it is trying to solve an economic crisis that was created by Washington and the solution is not more bad government interventionist policy,” said Dr. Joel P. Rutkowski, president of the American Voice Institute of Public Policy. 

To financial institutions that knowingly engaged in risky subprime lending, an enormous amount of taxpayer wealth would be transferred.  Such actions only encourage companies to take huge imprudent risks because they believe government will be their safety net and bail them out. The problem with this is that in an economy's allocation of its financial resources, this creates enormous distortion.

The scare mongering by the media and proponents of the plan that say the government must purchase troubled assets from financial institutions so banks can resume lending and so the credit markets, now virtually frozen, can begin to operate more normally is unfounded.  The federal reserves' data clearly demonstrates that the US banking system is still lending significantly to the economy with bank credit still expanding at a high rate of nine percent annually as of July 2008.  And any temporary freeze that occurs is the result of Wall Street hopeful for a bailout plan and banks wanting to sell their toxic asset for the most value to the government.

If this plan was approved it would have done more harm than good. Unfortunately, private sector entities would be crowded out of the capital market by the bailout plan that diverts resources to politically selected companies while increasing the level of federal debt.  It is deflationary, in that it diverts financial resources from the private to the public sector weakening the economic systems productivity growth potential and would deepen any economic downturn.

If this plan was approved it would have done more harm than good. Unfortunately, private sector entities would be crowded out of the capital market by the bailout plan that diverts resources to politically selected companies while increasing the level of federal debt.  It is deflationary, in that it diverts financial resources from the private to the public sector weakening the economic systems productivity growth potential and would deepen any economic downturn.

Throwing good money after bad money is not the solution. The cost to the taxpayer and future generations of Americans is too immense to save overleveraged banks and hedge funds. These actions by the government would only inflate the fiscal deficit to unsustainable levels thus seriously undermining US solvency. The cost of the plan is very difficult to assess and could turn out to be trillions of dollars indicated the Congressional Budget Office. The fiscal deficit would escalate to approximately $1.5 trillion when one considers a projected 2009 record deficit of $500 billion, the $700 billion price tag for the financial rescue plan as well as $200 billion for Fannie Mae and Freddie Mac and $85 billion for AIG. “This financial rescue plan truly is voodoo economics.  The troubled financial institutions should be allowed to declare bankruptcy instead of punishing the American taxpayer for those that took excessive risk and profited from their immoral and outrageous behavior.  Furthermore, it is now up to the American people to continue to pressure their representatives and senators to not pass a bailout plan but to allow the free-market to resolve the crisis that Washington has created. Americans must not allow Washington to redefine and shape American capitalism for the next half century. America can not become a nation in which prudent behavior is penalized and imprudent behavior is rewarded.  It must be a nation where people are held responsible for their decisions. And if the Washington oligarchy does not listen to this request a clear and resounding message must be sent at the ballot box this November to all the legislators that vote for outrageous and fiscally unsound bailout plans — removal from office,” said Dr. Joel P. Rutkowski.

For Interviews Contact:

Joel P. Rutkowski, P.h.D.
President, The American Voice Institute Of Public Policy

jrutkowski@americanvoiceinstitute.org

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