Online critics take aim at $700 billion financial bailout proposal

Internet criticism of the Bush administration's proposed $700 billion financial bailout package is growing, with skepticism crossing normal ideological boundaries.

On Tuesday, the conservative RedState.com pointed out that the Republican Party 2008 platform, adopted just weeks earlier, says "we do not support government bailouts of private institutions." An article on the liberal site DailyKos.com said there was "deep skepticism" toward the Mother of All Bailouts. Paleo-conservative doyen Pat Buchanan called the plan's backers "foolish and incompetent financiers and politicians," while a Huffington Post contributor said that the Bush administration "put a gun to the head of Congress."

Rep. Ron Paul, R-Texas, who presciently warned five years ago that taxpayers would be "forced to bail out investors, wrote an article for CNN.com saying that the bailout will create "even greater instability in the financial system in the long term." The libertarians at LewRockwell.com showered their readers with a deluge of posts, including ones titled "The Mugging of America" and "The Rescue Scam."

Mostly absent have been enthusiastic endorsements of Treasury Secretary Henry Paulson's three-page bailout bill that was submitted to Congress. The conservative Heritage Foundation said that "incompetent executives" needed to lose their multimillion-dollar severance packages, a requirement not in the Paulson plan, and a senior fellow at the Cato Institute offered a cautious defense with this tepid conclusion: "Something good may yet come out of all this."

For his part, Paulson has painted a nearly apocalyptic scenario of what could happen were the taxpayer-funded bailout not approved. His testimony before the Senate Banking Committee on Tuesday said that bad loans have already created deep financial uncertainty, and "if that situation were to persist, it would threaten all parts of our economy."

The online skepticism--or, in some cases, outright condemnation--seems to be mirrored on Capitol Hill.

"I don't think a single call to my office on this proposal has been positive," Sen. Sherrod Brown, an Ohio Democrat, said at the Senate hearing on Tuesday. Sen. Richard Shelby, an Alabama Republican, suggested that Congress consider "some alternatives." Politico.com reported that Vice President Dick Cheney's attempts to persuade House Republicans to support the measure failed miserably--an intra-party revolt unusual during the Bush presidency.

It also may be a matter of no longer trusting the Bush administration's figures. In 2003, the administration offered reassuring estimates that the cost of Iraq reconstruction would be as low as $1.7 billion; the supposedly nonpartisan Congressional Budget Office put it at $50 billion to $100 billion. Now, as we know, the true price tag to taxpayers has been closer to $3 trillion, with an extra $12.5 billion being spent every month.

Rep. Jose Serrano, D-N.Y., posted a list of questions on his Web site saying: "When President Bush tells us we must pass the bill exactly as he proposed it right away or face a catastrophic event, why do I feel like I'm voting on whether to go into Iraq all over again, and worry that the results will be similarly bad?"

Other comparisons drew parallels to other bills that the Bush administration pressured Congress to enact with minimal debate. New York Times columnist Andrew Ross Sorkin offered this line: "It is the financial equivalent of the Patriot Act."

As McCullagh's Law would predict, the situation involving the Patriot Act in 2001 also involved heavy pressure brought on politicians to approve a bill in a time of apparent crisis, with minimal time to prepare. Rep. Barney Frank, D-Mass., said during the debate seven years ago: "What we have today is an outrageous procedure: A bill, drafted by a handful of people in secret, comes to us without a committee review and immune to amendment." (More recently, Frank is the politician most responsible for blocking efforts to reform Fannie Mae and Freddie Mac, leading to the recent $200 billion bailout.)

This week's political response to the latter part of the boom-and-bust cycle is mostly predictable, at least in broad outline. When a central bank such as the Federal Reserve expands the money supply too quickly, it can create a temporary boom fueled by unsustainable borrowing and so-called "malinvestments" that would not have taken place otherwise. Today, real estate has become the very definition of a malinvestment.

The subsequent bust and recession, according to this view, is necessary to return the economy to something approaching normal.

F.A. Hayek, the late Nobel laureate, wrote something over half a century ago that remains eerily relevant: "Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion... To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about..."

Translated: The housing boom (and subsequent bust) were caused by overmuch government credit expansion and meddling in the U.S. financial system. Continuing along that path will only make a bad situation worse.