Candidates' Views on Bailout Vary

Press Release

Candidates' views on bailout vary

Three men running for Congress speak out on debt-purchase plan.

By Bob Caylor

of The News-Sentinel

The Bush administration has asked Congress a $700 billion question: Can America afford to not bail out banks and investors carrying bad mortgage debt?

Three men who want to represent northeast Indiana in Congress offer widely different answers, from Libertarian William Larsen, who thinks the feds shouldn't prop up financial markets steeped in reckless risk, to Democrat Mike Montagano, who says he would not support such a bailout unless benefits for more individuals are added.

The man who's likely to vote on at least some part of a debt-purchase plan soon, incumbent Republican Mark Souder, says some type of bailout is necessary to avoid defaults that might collapse consumer credit, the savings of ordinary investors and even the capacity of the U.S. government to operate on credit.

Souder said he's strongly influenced by his consultations with experts from Bank of America and JP Morgan Chase. They have warned that federal support is needed "unless you want to lose every bank in your district."

How could that be possible? Souder wouldn't have imagined it even two weeks ago. That was before the U.S. Treasury guaranteed the obligations of Fannie Mae and Freddie Mac, which together back perhaps $5 trillion in mortgage debt.

That was before the Treasury came back days later and took over the insurer AIG — also because of its exposure to risky or ruined mortgage debt. As the bad news has escalated, Souder, other legislators and their staffs have tried to see where it could end.

Unfortunately, it could end everywhere, affecting everyone, he said. From the Treasury, he's heard that the potential exposure to risky debt could range from $5 trillion to $15 trillion.

"The numbers are staggering," Souder said Monday. "This isn't just a few rich people. This is all of us."

The problem may have started with bad mortgage debt, shares of mortgage debt and more exotic financial instruments indexed to mortgage debt, he said, but it has spread far beyond the obvious casualties. Now other entities at risk are turning up: some money market funds, private companies looking for capital, pension funds, even conservative banks looking to tweak certificates of deposit for another tenth of a percent interest.

Souder said some further federal intervention is necessary to try to stabilize financial markets. However, he said it's too soon to know exactly how the government should administer the debt it takes over. At this stage, Souder said, the idea of structuring the public management of this debt through a kind of public utility looks like a promising compromise between allowing flexibility and requiring oversight.

Montagano, Souder's Democratic opponent, would insist on provisions to aid small debtors, too, before he would support the bailout. "Any solution here cannot be a simple financial services industry bailout, but must protect homeowners and small businesses here at home," he wrote in an e-mail Monday.

Like Souder, Montagano said it is important not to hobble the U.S. economy through unduly heavy regulation. "We should make sure that any federal regulation of our economy must remain light and nimble to adapt to and support our markets. Any staffing or agency should be implemented only to prevent this sort of big-government bailout from happening again," he said.

Montagano lays much of the blame on federal elected officials, including Souder, because they have been lax in their oversight. "We need to change who we are sending to Washington to oversee this process if we are to change how things are being done there," Montagano said.

Libertarian Larsen expects more trouble - trouble that even a $700 billion bailout might not avert.

He pointed out that this crisis of uncertainty has been robust. "Every time they put a firebreak in, (the crisis) leaps over it and takes something else down," Larsen said.

Larsen agrees with Souder that this vulnerability has spread throughout many kinds of investments. But he suspects that no government subsidy or support holds the answer. "Taxpayers should not back this; there's no guarantee it will work," he said.

He suggested that letting defaults occur, here and around the world, might be the best, if a painful, way to put the economy back on the right track, eventually. He compared it to bracing for a hurricane, then cleaning up the damage as soon as possible. Either way, he foresees a lot of economic suffering.

"I'm not sure which way is worse," he said. "We may just be prolonging this agony five or 10 years," Larsen said.

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