18 Libertarian Candidates Ask: Did PACs Buy A Bailout?

Sunnyvale, CA -- Oct. 9, 2008 -- Eighteen Libertarian candidates for Congress in California today issued a joint statement opposing the current financial bailout and asking whether the votes for it were openly bought with campaign contributions.  They released a table of data (below) from OpenSecrets.org showing how the bailout votes of their incumbent opponents correlate suspiciously with the incumbents' 2008 campaign contributions from PACs in the finance, insurance, and real estate industries.  The Libertarian candidates said:

The current mortgage crisis is the direct and predictable result of the government protecting borrowers and lenders from their own unwise choices. Only one party in America—the Libertarian Party—is willing to say who caused this crisis and to consistently follow the principle of holding such people responsible for their own choices.

When the government covers someone’s losses, this creates a “moral hazard” that those businesses will continue to take unwise risks. After the 1989 bailout of the S&L industry, the government fed a new real estate bubble with several more bad decisions. In 1992 Congress required Fannie Mae and Freddie Mac to devote part of their lending to affordable housing. In 1994, Congress acted to encourage private lenders to direct more money to low-income borrowers. In 1995, new rules under the Community Reinvestment Act required lenders to spend money on advertising these loans to low-income borrowers. In 1999, Fannie Mae created another program to make loans to borrowers whose credit was not good enough to qualify for normal loans, prompting one economist to warn: “This is another thrift industry growing up around us. If they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.”

Now the Republicans and Democrats have intervened again in the credit markets, by spending $700B of taxpayer money on bad mortgages. This is a recipe for continuing the cycle of bailouts. Twenty years ago, the S&L bailout cost $160B. Today’s bill is $700B. What will the next bailout cost?

Libertarians say it’s time to stop the insanity. Bailout advocates claim the government could profit from buying these non-performing mortgages, but if this were true, then let private investors pursue these opportunities with their own money instead of with your tax dollars.

We already have a mechanism to sort out the assets and liabilities of a troubled company—it’s called bankruptcy. Bankruptcy doesn’t mean that assets get torched or employees get blacklisted from all future employment. Bankruptcy just means that assets and employees are taken away from those who failed to manage them wisely, and made available for more productive employment.

We already have a mechanism to punish those who deceived borrowers or lenders—it’s called prosecution for fraud. The Libertarian candidate for President, Bob Barr, a former federal prosecutor, has called for vigorous prosecution of anybody who engaged in deceptive lending or who deliberately overvalued mortgage-backed securities. He says we need to clean up the marketplace, not cover up financial crimes with a pile of taxpayer money.

Most importantly, we already have a mechanism to punish the politicians who worked so hard to help create this mess—it’s called an election. This November, don’t bail out the incumbents who are using your tax dollars to bail out their irresponsible friends on Wall Street. Instead, vote for the only party in America that believes people should be free to make their own choices in their personal and economic lives—and should bear the responsibility for those choices. Vote Libertarian, and send the message that Washington should be in nobody’s pocket.