The $700 billion bailout of the financial system just got worse, thanks to a rewrite by Senate banking committee chairman Chris Dodd. If the government loses money on all the “bad debt” it’s buying, the taxpayers will pick up 100% of the tab. But if markets rebound, or the government makes money on any of its individual purchases, taxpayers won’t keep the money. Instead, at least 20 percent of it will go into a housing slush fund that will benefit the left-wing group ACORN, which pressured lenders to make the risky sub-prime mortgage loans that spawned the mortgage crisis. (Even though housing subsidies and mandates caused the mortgage bubble in the first place).
ACORN practices widespread voter fraud to increase liberal turnout in elections, and is guilty of financial fraud and embezzlement, but it has avoided any punishment due to its links to liberal lawmakers like Senator Chris Dodd, Congressman Barney Frank, and Senator Charles Schumer. ACORN is engaged in massive fraud in battleground states like Florida. (Election rules are being shredded for partisan purposes in other battleground states like Virginia and Ohio).
Other welfare has been added to the bailout to appease liberal lawmakers — the very lawmakers who blocked any reform of the government-sponsored mortgage giants, Fannie Mae and Freddie Mac, which encouraged the risky lending that spawned the financial crisis (Fannie Mae engaged in extensive accounting fraud to benefit its crooked former executives. Yet they remain influential liberal powerbrokers).
Even in its original form, the bailout was inflationary and unconstitutional, and created the risk of future bubbles. It blindly ignored less costly alternatives and reforms of burdensome regulations that would reduce the need for a bailout. It gave officials $700 billion to buy up bad loans, even though government incompetence and regulations (like affordable housing mandates) spawned the mortgage crisis. Many economists oppose the proposed bailout, as Senator Shelby noted.
The banking system is shaky, but it would have been even worse if Congress had not modernized banking laws by repealing regulations that artificially restricted bank diversification in 1999, as banking expert Peter Wallison and Columbia Business School’s Charles Calomiris have noted.