Bond Warns of ‘Dead Cat Bounce,' Dangers of Neglecting Credit Crisis, Growing Government Debt

Press Release

Bond Warns of ‘Dead Cat Bounce,' Dangers of Neglecting Credit Crisis, Growing Government Debt

U.S. Senator Kit Bond (R-MO) today cautioned that despite recent positive signs of economic recovery, the Administration and Congress should be wary of a "dead cat bounce" - the term used in financial circles to describe a brief up-tick in a stock before the stock's value continues to plummet. The Senator also continued to sound the alarm over the Administration's failure to solve the underlying cause of our economic crisis and growing government debt.

"In recent weeks, some have identified positive signs of economic recovery or ‘green shoots,'" Bond said. "But other experts believe that these green shoots may just wither away due to continuing problems in the housing sector, consumer debt remaining high, significant deleveraging occurring in the financial sector and lingering questions about the solvency of some of our big banks. As they say in the financial industry, we may be experiencing a ‘dead cat bounce.'"

During today's Senate Financial Services and General Government Appropriations Subcommittee hearing on the Department of the Treasury and the Internal Revenue Service, Bond warned Treasury Secretary Timothy Geithner that early positive signs of economic recovery may be misleading since the Administration has still failed to address the root cause of the economic crisis - our credit crisis. Bond stressed to Secretary Geithner that continuing their ad hoc approach to the economic crisis is risky and irresponsible. The Senator has previously warned that continuing to bailout financial institutions without addressing the credit crisis is tantamount to throwing taxpayer money down a rat hole.

"President Obama said to Congress in February that we won't have economic recovery until we clean up the credit crisis, I agree with him totally," Bond said. "Too much money has been thrown at our financial institutions without removing the toxic assets and further delay only makes the problem worse as we have seen with Japan in the 1990's."

Since March, and again today, the Senator urged the Administration to create a Resolution Trust Corporation similar to what was used to help the Nation recover from the Savings and Loan Crisis in the 1980's. This proposal was a key component of Bond's American Credit Cleanup Plan to get the toxic assets out of the clogged financial system. Bond pointed out that, unlike under his proposal, the Public-Private Investment Program (PPIP) that the Administration has created to deal with the toxic assets remains sidelined and is unlikely ever to be launched because it appears to be political in nature and places most of the risk on the backs of the taxpayers.

"Unfortunately, the Administration has resisted the creation of a Resolution Trust Corporation approach but continues an ad hoc, incremental approach to our ‘too big to fail' financial institutions without any semblance of an exit strategy," Bond said.

During today's hearing the Senator also expressed concerns to the stimulus bill that has failed to stimulate the economy or job creation. Further, Bond raised the need to change course from the irresponsible spending spree proposed by the Administration in their budget plan, which will double the federal debt in five years and triple the debt in 10 years.

"While the lack of stimulus is extremely troubling, what is truly alarming is the Administration's future budget plan, which promises more spending that will double the debt in five years and triple the debt in 10 years. This means that our children are going to inherit an obligation where interest payments on the debt - around $800 billion annually - are likely to be the largest single financial obligation of the Federal government. These figures are certainly not funny to future generations, but it is difficult not to laugh when Administration officials publicly claim that lending money to the U.S. government is still safe." Bond said.

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