Responce: Senator Wayne Allard (1 Trillion Bailout)

Thank you for writing to me about the recent troubling activity on Wall Street.  I understand your concern and appreciate your taking the time to contact me.

 The U.S. economy began facing challenges last year due in large part to problems in the subprime mortgage market.  The severity of the problems became quite apparent in March 2008, when Bear Stearns, a financial services firm, collapsed.  At the beginning of September 2008, the federal government took control of the two housing government sponsored enterprises, Fannie Mae and Freddie Mac.  Unfortunately, the difficulties that began in the subprime mortgage market had spread to other market sectors, causing Lehman Brothers to file for bankruptcy and Merrill Lynch to be bought out by Bank of America.  The Federal Reserve and Treasury intervened to prevent a bankruptcy filing by AIG and took over the company.  Additional firms showed weakening under market pressures.

 These events touched off a significant crisis of confidence in our financial markets.  Without capital flowing freely, illiquidity left them virtually frozen.  The frozen capital markets represent a threat not only to the financial sector, but the business sector and entire economy as well.  Our economy was at a perilous junction.

 o prevent a financial crisis, Treasury Secretary Paulson and Federal Reserve Chairman Bernanke released a proposal to allow the federal government to purchase up to $700 billion of the troubled, illiquid assets that had seized up the markets.  These assets would be held by the government for some period of time, after which they would be sold, potentially for a profit.  The Treasury Department believes this will promote market stability and help protect American families and the U.S. economy by fundamentally and comprehensively addressing the root cause of our financial system’s current distress. It is clear that our economy is facing a critical moment.  Both Secretary Paulson and Chairman Bernanke have offered sobering testimony about the potential consequences of a failure to act, including that our nation could face severe strains, such as during the Great Depression.  Such a scenario would have serious consequences not only for those with investments and retirement accounts, but for everyone.

 While Congress should act quickly but carefully to restore trust and confidence in the American economy and financial markets, I do not take the potential commitment of $700 billion in taxpayer dollars lightly.  In fact, protecting taxpayer interests has been one of my main goals during my time in the Senate.  While it is reasonable for the federal government to take steps to mitigate widespread damage to the economy, the free market involves both risk and reward.  It is not the job of the government or taxpayers to simply absorb all the risk in the market.

 In assuring the world market that the American financial system is safe and sound, we must find ways to protect the taxpayers as much as possible.  In particular, I believe that any proceeds realized as the government held assets are sold in the future should be used to pay down the debt.  That way some or all of the money borrowed now to buy the troubled assets will be repaid, rather than being used simply to fund additional government spending on unrelated programs.

 In considering legislation Congress should act to preserve our free-market tradition.  We have never propped up failed businesses on Main Street; we should not prop up failure and malfeasance on Wall Street.  We must prevent panic in the market, but we must resist the temptation to overreact.  Overreaction will in the long run be worse for our freedom and our economy.  Finally, in considering the stresses in our financial markets, we must make sure that the possible solutions actually work and address the underlying problems.  Congress must move promptly, but quick legislation should not come at the expense of good legislation.  We need a plan that is timely, but not hasty, prudent but bold.

 As a senior member of the Senate Banking Committee, I am working closely with Secretary Paulson, Chairman Bernanke, and my colleagues on this matter.  Clearly, this is a complicated matter, and there are many details.  Some questions have been answered, but many questions still need to be answered.  I can assure you that taxpayers will be my primary consideration in this matter: I will be weighing carefully the potential cost to taxpayers of a bailout as compared to the potential cost to taxpayers and the rest of Americans if we don’t enact a plan and the economy falters.  Rest assured, I value your opinion greatly and feel tremendous responsibility to ensure the best possible outcome for Colorado and the nation.

 Again, thank you for writing to express your concerns.  If you would like more information regarding this and other issues important to Colorado, please visit my website at <a href=”http://allard.senate.gov/”>http://allard.senate.gov</a>.

 

Sincerely,

A

Wayne Allard

United States Senator

WA:KA