Rewriting the History of the Bank Bailout; Don't Blame Congress for the Reckless Actions of Two Presidents

Article excerpt

Byline: By Rob Collins and Douglas Holtz-Eakin, SPECIAL TO THE WASHINGTON TIMES

It is remarkable how quickly the emotions of the financial panic of the fall of 2008 have faded from public memory. At the height of that panic, then-Secretary of the Treasury Henry Paulson and Federal Reserve Chairman Ben S. Bernanke addressed a special meeting of congressional leadership on the night of Sept. 18.

It was an extraordinary and scary moment. The finest minds of Wall Street and academia spoke as one about the imminent descent of the United States into a second Great Depression. They pleaded for, and essentially demanded, extraordinary budgetary, statutory and administrative powers to intercede in the financial sector to address the crisis. They placed the burden to act on Congress.

At a Sept. 23, 2008 Senate Banking Committee hearing, Chairman Christopher J. Dodd, Connecticut Democrat, had these words to say: This proposal is stunning and unprecedented in scope and lack of detail, I might add. It would allow the secretary of the Treasury to intervene in our economy by purchasing at least $700 billion of toxic assets. It would allow the secretary to hold onto those assets for years and to pay millions of dollars to hand-pick firms to manage those assets.

Despite the lack of specifics, the Democrat-controlled Congress on Oct. 3 passed the Toxic Asset Relief Program (TARP) - a $700 billion program to address the financial crisis. But even in that moment, Congress did more than just pass a bill. It did due diligence. It held hearings, and Mr. Paulson testified, The $700 billion program we have proposed is not a spending program. It is an asset purchase program, and the assets which are bought and held will ultimately be resold, with the proceeds coming back to the government. Mr. Bernanke concurred. Testifying before the Joint Economic Committee he said, The Federal Reserve supports the Treasury's proposal to buy illiquid assets from financial institutions. These performances and sentiments were repeated in front of the House Financial Services Committee and the House Budget Committee.

Congress was told that the problem was subprime mortgages and other toxic assets held on the balance sheets of large financial institutions. The plan was to get them off the balance sheets and provide a transparent bill of financial health to the restructured financial sector. The goal was to short-circuit the fallout from a housing bubble that grew into a financial tsunami and threatened every creditworthy business in America.

These are the facts. We know because any careful examination of the history supports this account. We also know because we were there.

Nevertheless, we write this short reminder of the response to the crisis because a revisionist history plagues this country. In the revisionist version, any sitting member of Congress who responded to the need for action supports bank bailouts. In these populist and (legitimately) angry times, it is easy to put a scarlet B on the incumbent, but that doesn't make it right.

Sen. John McCain, Arizona Republican, has been attacked for arguing that he was duped in the process supporting the TARP. …