Conservative Republican members of the House of Representatives have offered a “free-market alternative” to Treasury Secretary Henry Paulson’s $700 billion plan to bail out the mortgage industry. Arizona’s John Shadegg talked to
National Review Online about the state of negotiations Friday night.
What would you consider the definition of “success,” in terms of what Congress is trying to accomplish?
I believe the definition of success would be passing financial legislation that … ensures no financial collapse, no job loss, but also results in no burden going forward on average Americans, in terms of taxpayers. The original proposal that Secretary Paulson put forward, I’m convinced was not the best idea to do that …
Is a bailout necessary to save the economy at this point from complete collapse — from a major failure of multiple institutions at the same time?
I think that’s the most difficult question that could be posed under these circumstances, and it’s the question that I have struggled all week to find the answer to. I have talked to a lot of smart people who know Wall Street, know banking, know the economy quite well, and you hear different opinions. Some will tell you that it is absolutely essential. Quite frankly, I’m skeptical about that.
But I think that in some ways the question doesn’t matter any more. Because Secretary Paulson chose to raise the matter in the way he did — that is, to go public in a very high-profile way, not just with his concern, but with a kind of Chicken-Little, the-sky-is-falling kind of demand — it became a self-fulfilling prophecy.
That is to say, once the secretary of the Treasury announces to the world that there is a pending financial collapse, perhaps as great as the Great Depression, and Congress must act — he has sent a signal that essentially tells world markets that Congress must act. I will tell you that has been one of the most frustrating things about this since the very beginning...
I can’t tell you how many members of Congress were stunned at that news, and were stunned that none of their local bankers were calling them. And then they called their local bankers, as I called my local bankers, and my local bankers said, “I think things are just fine.” I talked to one banker who said, “Gosh, we’ve got money, and we’re liquid, and we’re making a profit. And we’re in the market selling loans, and we’ve got competitors trying to sell loans against us.”
So, at that point, there’s a disconnect. Secretary Paulson is claiming that this is a catastrophe of generational proportions that could go worldwide. And none of what we were hearing back home matches that. And I’m not speaking just for myself, but also for many of my colleagues who were making similar calls. They weren’t being called by their bankers, or by any of the businesses back home saying, “I can’t borrow any money”.... If, in fact, Paulson had struck a chord with the American banking community, wouldn’t you think that after he announced on Friday that there was a crisis of liquidity that threatens the entire nation’s financial solvency and Americans’ jobs from coast to coast, that my community bankers in Arizona wouldn’t have been picking up the phone by Monday morning, if not over the weekend, to say that “I share the Secretary’s concerns”?
The proposal for an FDIC-style agency that is funded by Wall Street sufficient to solve the current crisis — is it necessary?
I think it is a dramatically better vehicle than what Mr. Paulson proposed. And if he is absolutely convinced that is not sufficient, then it’s his job to step forward now and show that he has actually listened to the proposal and make the case for why it isn’t sufficient. Do I know if it’s necessary? ... Now that Paulson has made the assertion that we are in deep trouble, he in fact has to send the signal that we are taking the potential of the serious troubles seriously... He has not done a very good job of making his case, he has not had people rallying to his side, saying he’s absolutely right... If you’re in the banking business now and you’re a lender, you’re going to say “Wow, Paulson says the government has got to get involved... I guess I’ll wait until I see what the government involvement is going to be.” And so there may have been some restriction in lending this week. And I’m inclined to believe that’s because Secretary Paulson said there’s a problem...
Can this afford to wait a little longer, to make sure that the bill is right? And when you say in your press release that you’re “cautiously optimistic,” are you just getting my hopes up or do you think we may avoid a massive bailout of Wall Street here?
What I’m “cautiously optimistic” about is that rather than passing a terrible nightmare put forth by Secretary Paulson — as was proposed earlier in the week — I’m cautiously optimistic that in fact we are in fact going to revise that proposal in ways that will make it quite dramatically better. The insurance proposal — that’s dramatically better... There was language earlier in the executive draft that would have the government take ownership interest in all the banks that brought assets to the table to be bought. I have a real problem with government owning a whole bunch of those assets and government partially controlling them. Can you imagine a banking system, going forward, where the government owns a part — a third of these banks, or even half? .... So I’m cautiously optimistic that it’s going to be a dramatically better proposal — quite frankly because of John McCain. Prior to John McCain saying, in the Cabinet Room [Thursday], “Here are my five points, and beyond that, I’m with House Republicans,” Henry Paulson was attempting to use fear — and it was... fear-mongering — in an effort to stampede the Congress. And the only people standing in his way at the time were House Republicans — from passing his bad idea which was $700 billion to spend without restrictions, and in a stunningly irresponsible way...
What about funding for ACORN? Can that be eliminated?
One of the things we’ve put on the table is either a complete elimination of funding going to ACORN, or a restructuring of that language to the point where it is unlikely funds would ever flow to them. And I have heard House Republicans say, “I will never vote for a bill that allows a dime to go to ACORN” …
According to the polls I’ve seen, the public opposes the bailout — it could be an issue as powerful as the drilling issue... Does it also give you a way to distance yourself from President Bush?
I certainly want to distance myself from him on this issue, anyway. Look — President Bush has a tendency to surround himself with smart people, and to trust them... Secretary Paulson earned that trust, evidently. And in this case, I would say he has abused that trust. And you can put that on the record.
