On Bailouts and Regulation

Regarding rescue plans for homeowners caught up in the mortgage crisis, Senator John McCain has said: “It is not the duty of government to bail out and reward those who act irresponsibly.” But what about the Wall Street firms whose irresponsible lending practices created this mess? For them, McCain and the Bush administration have agreed to a huge government bailout, in the form of $400 billion in loans at rock-bottom rates.

Contrary to what they've been telling us, conservatives don't necessarily oppose government intervention in the market; it all depends on who benefits from the intervention. And yet, defending free market ideology, in its most mythical proportions, is central to their worldview, which rests upon personal responsibility/rugged individualism, combined with a limited role for government and the primacy of market competition. This is why they fight against a modest and flawed proposal for the government to step in and refinance mortgages for homeowners who are at risk of defaulting. Conservatives cannot openly support government help for homeowners, even though they know some form of relief is bound to happen, because it undermines their core principles. And yet, if the market is supposed to be self-correcting, and is capable of imposing discipline upon those who act irresponsibly, then why does the government need to bail out financial institutions like Bear Stearns? This is one of the many contradictions we need to expose.

Here’s another contradiction worth exposing: If the government should not bail out those who act irresponsibly, as McCain says, then what should the government be doing to prevent irresponsible behavior on the part of Wall Street firms? The answer: regulation. But this is a four-letter word for corporate-conservatives. Deregulation has been a major plank in the corporate-conservative agenda, bolstered by the mainstreaming of their worldview about markets and the role of government. Since the early 1980s, they have managed to deregulate all aspects of the financial industry, and to prevent regulation of institutions like Bear Stears that operate outside of the regulatory system for banks. Now that we are facing the consequences of deregulation, conservatives are scrambling to beat back proposals that would overhaul the regulatory structure. Even now, the Administration argues that 'market discipline is the most effective tool to limit systemic risk.' They cannot concede the obvious because to do so would risk undermining the pillars of corporate-conservative ideology, especially their free market fundamentalism.

When it comes to no-strings-attached bailouts to Wall Street, which is what the $400 billion loans minus regulations amounts to, all their talk about not rewarding irresponsibility is exposed as hypocrisy.

Views expressed on this page are those of the authors and not necessarily those of Campaign for America's Future or Institute for America's Future