Government Doesn’t ‘Have a Choice’ on Bailout Plan, Rudman Says
COALITION
New Hampshire Union Leader
Jenny Paul
Boston University Washington News Service
9/23/08
WASHINGTON – The government’s $700 billion bailout plan is essential to put liquidity back in the market, former Sen. Warren Rudman (R-N.H.) said Tuesday.
“I don’t think we have a choice,” said Rudman, who co-chairs the Concord Coalition, a non-partisan group that advocates the goal of a balanced federal budget. “Unfortunately, it’s not a free choice. It comes with a cost.”
The cost of the rescue plan could boost the federal budget deficit to $700 billion or $800 billion next year, which could devalue the dollar and increase inflation, Rudman said. The estimated deficit for fiscal year 2008, which ends next Tuesday, is $407 billion, according to a Sept. 9 report by the Congressional Budget Office.
“If we start running a $700, $800 billion deficit next year, then we’re going to have a definite effect on the dollar, which will go down,” Rudman said.
Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, said Monday that the proposal—which would authorize the government to buy and eventually resell troubled mortgage-backed securities–would not cost $700 billion, noting that $700 billion is the initial authorization to spend, not the projected cost.
“It will clearly cost considerably less than $700 billion ultimately, because you’re going to sell these benefits,” Frank said at a press conference. “We’re acquiring things that we will sell. Nobody knows how much they will cost in the end…. It really depends on how well it works, because if the market recovers to a great extent, the assets recover, you get more money back.”
Rudman agreed that Frank was “talking within the realm of probability.”
“The net expenditure over the long term won’t be anywhere near $700 billion,” he said. “Certainly there will be substantial recovery.”
Rudman said there should be more accountability built into the plan regarding the governance of companies that are bailed out.
The cost of the bailout adds to a budget weighed down by long-term obligations to fund Social Security and Medicare, said Robert Bixby, executive director of the Concord Coalition. He said the amount of debt involved in the rescue package could spur members of Congress to take another look at the budget and begin to close the budget gap by reducing government spending or raising taxes.
“People seem to think that you can go along living off of credit and hoping that nothing goes wrong, and that’s basically what the federal government has been doing,” Bixby said. “So I think that what we need to do after we get through this initial bailout is get down to work to make sure that the federal government isn’t in need of a bailout itself.”
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