McCain takes a stand against Washington’s biggest example of “crony capitalism:”
What should be done? We are stuck with the reality that they have grown so large that we must support Fannie Mae and Freddie Mac through the current rough spell. But if a dime of taxpayer money ends up being directly invested, the management and the board should immediately be replaced, multimillion dollar salaries should be cut, and bonuses and other compensation should be eliminated. They should cease all lobbying activities and drop all payments to outside lobbyists. And taxpayers should be first in line for any repayments.
Even with those terms, sticking Main Street Americans with Wall Street’s bill is a shame on Washington. If elected, I’ll continue my crusade for the right reform of the institutions: making them go away. I will get real regulation that limits their ability to borrow, shrinks their size until they are no longer a threat to our economy, and privatizes and eliminates their links to the government.
I only wish he had named names, like Barney Frank and Chris Dodd. For a more full description of who has been backing these guys, see here. Taxpayers first in line is right. Start by eliminating the dividend, and if future lenders are going to get a guarantee, past lenders should not get a penny from our largesse for them counting on us to bail them out. Too many people make loans under the theory of too big to fail. No lenders should escape injury for having done so. We have to eliminate the massive moral hazard of assumed government rescues of bondholders and lenders (see bear Stearns for exhibit A.)
We are quick to punish equity holders, but we repatedly rescue the holders of debt. That is doubly ridiculous in the midst of a credit crisis brought on by excessive risk taking in the debt markets. Only explicit government guarantees to lenders should be honored. Only after taxpayers are reimbursed should the lenders begin recieving their payments. Not one penny before that.
Of course, the loss to other lenders might make the current crisis worse, so I suggest they begin negotiating right now to avoid any need for our financing and to help keep these guys afloat. Cut the dividend, start shrinking the portfolio and shedding assets. Tell Congress to take a hike about expanding their lending activity, etc. (Thanks to Instapundit.)
