Bail out China?!

Statement

Bail out China?!

It is foolish and unjust for the U.S. government to bail out failed investment houses and banks. Think of it: why should the taxpayers be ordered to pay because a private company mis-spent its depositors' money? Not only are we providing incentive for them to make risky loans—which has its own side effects—we also saddle the taxpayers with another expense they don't need. I've already talked about this here.

But FreedomWorks points out another problem:

As politicians call for taxpayer bailouts and a government takeover of troubled mortgage lenders Freddie Mac and Fannie Mae, FreedomWorks would like to point out that a bailout is a transfer of possibly hundreds of billions of U.S. tax dollars to sophisticated investors and governments overseas.

The top five foreign holders of Freddie and Fannie long-term debt are China, Japan, the Cayman Islands, Luxembourg, and Belgium. In total foreign investors hold over $1.3 trillion in these agency bonds, according to the U.S. Treasury's most recent "Report on Foreign Portfolio Holdings of U.S. Securities."

FreedomWorks President Matt Kibbe commented, "The prospectus for every GSE bond clearly states that it is not backed by the United States government. That's why investors holding agency bonds already receive a significant risk premium over Treasuries."

"A bailout at this stage would be the worst possible outcome for American taxpayers and mortgage holders, who have been paying a risk premium to these foreign investors. It would change the rules of the game retroactively and would directly subsidize the risks taken by sophisticated foreign investors."

Utterly incompetent. Blatantly corrupt. Insane. These are the only adjective I can think of, for the leaders that are backing the bailout. Treasury Secretary Henry Paulson did say that a bailout plan should not benefit shareholders. Perhaps he would do the right thing, it seemed.

But no, the Fed bailed them out. A shame, but not a surprise.

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