Bailout Critics Say They’re Losing

It’s not an easy week to be a Bailout Buster.

The loose coalition of free market conservatives and congressional staff opposed the government-sponsored rescues of investment bank Bear Stearns, insurance company American International Group and mortgage giants Fannie Mae and Freddie Mac. Now the Bush administration is proposing the largest government-funded bailout in American history. And the Bailout Busters are bracing themselves for defeat once again.

“Grass-roots reaction is visceral and going to be big,” said Matt Kibbe, president of the fiscally conservative advocacy group FreedomWorks. But the plan “is steamrolling ahead.”

Large national crises often push Congress to put aside partisan differences and quickly pass broad legislation. And this market meltdown is no different: Congress is under intense political pressure from the financial markets to rapidly pass the $700 billion bailout package assembled by Treasury Secretary Henry Paulson.

The administration has warned that, unless Congress acts quickly, the economy could plunge into a depression.

“The cleaner the better, and the quicker the better,” White House press secretary Dana Perino said on Monday. “The way that you get a clean and quick bill is to make sure that it is clearly, narrowly targeted to giving the Treasury these authorities in order to help stabilize the market.”

On Tuesday, Paulson pressed the administration’s case personally — and bluntly — to the Senate Banking, Housing and Urban Affairs Committee.

“Over these past days, it has become clear that there is bipartisan consensus for an urgent legislative solution,” he said. “We need to build upon this spirit to enact this bill quickly and cleanly and avoid slowing it down with other provisions that are unrelated or don’t have broad support.”

Fiscal conservatives, though, fear their principles will be swept out with the Congress, which is scheduled to recess at the end of the week for the fall campaigns.

“We are opposed to it, but we are also resigned to the fact that we lost,” said Ryan Ellis, tax policy director at Americans for Tax Reform, which is likely going to sit out this fight. “It’s not a good use of our time,” Ellis explained.

Bailout Busters believe that allowing the market to work out its problems is the best solution to the country’s pressing economic woes. Rescuing the failing financial services firms with taxpayer funds, they argue, creates chaos in the markets and entices companies to make their balance sheets look worse in hopes of getting help.

Free market advocates say that, in the long term, the bailout could increase inflation and encourage businesses to take risky bets under the assumption that they can always be saved by government intervention.

“Socializing economic risks comes 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,” said Club for Growth President Pat Toomey. “Such a large takeover by the government will surely be accompanied by adverse, unintended consequences.”

Government actions, fiscal conservatives argue, should be limited to the policies that they’ve pushed for years as the way to foster economic growth: cutting taxes, making permanent the 15 percent tax rate on capital gains, and slashing government spending.

Even some hard-core fiscal conservatives admit that adapting pure free market policies may be too politically painful for Congress in an election year.

“What should be done is for the market to correct this,” Ellis said. “If firms have to fail, let them fail. If households have to go belly up, let them. We’ll all be better for it.”

Social conservatives spotted some room to maneuver as an increasing number of lawmakers have raised questions about the package since it was first unveiled early this week.

Bailouts make for strange bedfellows, it seems, as lawmakers from opposite ends of the ideological spectrum voice their opposition to the plan.

On Monday, nine congressmen calling themselves the Skeptics Caucus met to discuss problems with the administration’s proposal.

“Nationalizing every bad mortgage in America is not the solution,” Rep. Mike Pence (R-Ind.) said on MSNBC’s “Hardball” on Monday.

In the Senate, fiscally conservative Sen. Jim DeMint (R-S.C.) warned the bailout could worsen the country’s economic problems.

“This plan does nothing to address the misguided government policies that created this mess,” he said, “and it could make matters much worse by socializing an entire sector of the U.S. economy.”

Sen. Bernie Sanders (I-Vt.) logged 40 calls over the weekend about the bailout, far more than the liberal senator normally receives.

“This proposal, as presented, is an unacceptable attempt to force middle-income families (and our children) to pick up the cost of fixing the horrendous economic mess that is the product of the Bush administration’s deregulatory fever and Wall Street’s insatiable greed,” he said in a statement.

The Bailout Busters are still searching for legislative allies to join the small but vocal group of lawmakers opposing the plan, and they hope to delay the vote long enough to make their case.

The National Taxpayers Union circulated a letter from its 362,000 members, imploring Congress to resist a hasty solution.

“The markets will react more negatively to a poorly drafted package than none at all,” the letter read. “You owe your constituents a thoughtful debate about such a sweeping proposal simply handed to you from the leadership.”

The organization pushed lawmakers to limit the scope and duration of any package, avoid taking any long-term interest in the rescued companies, and investigate the actions of government regulatory agencies and company top executives.

The taxpayer group also asked good governance advocates such as OMB Watch and the Government Accountability Project to help it push Congress to increase the transparency of the package, with provisions to make all the information about the transactions completely public.

Housing groups, labor unions and civil rights advocates also joined the chorus objecting to the bailout, urging Congress to help homeowners by including court-supervised mortgage restructuring and passing a second stimulus package that extends unemployment benefits and provides aid to cities and states.

Despite the lobbying push, though, a plan is likely to pass overwhelmingly, said conservative advocates.

And that leaves the Bailout Busters in a tough spot over the next month. All the conservative groups planned to take to the campaign trail in October to talk about lower taxes, energy policy and other economic issues. FreedomWorks, for instance, has already scheduled rallies and meetings in Colorado, Oregon, Arizona and other key swing states. But slamming lawmakers for their bailout votes will be a tough task.

“If everyone votes for it, who do you target?” Kibbe said.