Government Bailout is a big Mistake

Washington – The Club for Growth condemned the massive government bailout proposed by the Treasury and the Bush administration as unnecessary, unfair to taxpayers, and fraught with serious costs to the American economy.

Eighteen months into the credit crunch, many largely capitalized financial services firms are experiencing serious difficulties but the overall economy continues to grow. GDP growth over the past 12 months was 2.25 percent and 3.5 percent when excluding the drag imposed by the housing sector. Even within the financial sector, many banks are doing well. Regional bank indices had risen significantly since the lows of last July—prior to the bailout announcement—and thousands of community banks are thriving. It is extraordinary that a massive government intervention in the economy is considered inevitable when the economy is not even in a recession.

At the same time, socializing economic risks come at a great cost to the American economy by misallocating capital, inviting political manipulation, and putting taxpayers on the hook for possibly a trillion dollars. Such a large takeover by the government will surely be accompanied by adverse, unintended consequences. Already, other companies and industries are lining up at government’s door asking for their own bailout. And if the government incurs $700 billion in debt to finance the purchase of bad bank assets, the danger that it will eventually monetize that debt and trigger dramatic inflation is very worrisome.

“The Treasury’s bailout proposal will likely cause more harm than good,” said Club for Growth President Pat Toomey. “Instead of launching the largest government bailout since the Great Depression, the government should be implementing policies to stimulate the economy. These include, at a minimum, cutting the tax on capital gains, cutting corporate taxes, reviewing and considering repeal of FAS 157 which requires banks to mark-to-market most securities, and emphasizing the need for a strong dollar.”

“Finally, many politicians are using the current struggle to make free-market capitalism the scapegoat for the economy’s troubles, when in fact, government played a major role in getting us into this mess in the first place. Free-market capitalism is alive and well, and we should be embracing its tenets, not rejecting them.”

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