Bob McTeer, former president of the Federal Reserve Bank of Dallas, sums up the current financial crisis with the titles of two songs and a haiku. One of the songs is by Buddy Holly: “Crying, Waiting, Hoping.” The other’s a C&W ditty: “I Can’t Kiss You Goodbye, Darling, Cuz You Won’t Go Away.” The haiku: “If good loans don’t earn enough to suit us, maybe bad loans will.” Speaking at a Dallas conference this morning, the famous free marketeer then turned more serious and told why the Bush administration’s $700 billion bank-bailout plan is “absolutely necessary to prevent a financial meltdown.”
It’s wrong to believe the $700 billion will be poured “down a rathole,” McTeer said. That’s because the Treasury Department plans to buy all the bad housing loans–the culprit in this crisis–over a two- to three-year period and sell them off, making money in the process.
But to get people to buy into the proposal, McTeer said, smiling, “we need Bill Clinton, because he’s good at convincing people that government spending is actually ‘investment.’ ” By contrast, he said, Treasury secretary Henry Paulson’s approach hasn’t worked.
“The effort is to unclog the financial system, not bail out specific banks,” McTeer said. “There will be a lot of beneficiaries. And it’s potentially going to save the economy.”
Maybe not a moment too soon. The former Texas A&M University chancellor ticked off a series of gloomy points and predictions:
–The U.S. economy moved into negative-growth territory in the last quarter of 2007, so we’re probably already in a recession that began last December or January. And it will last longer than the last two downturns, each of which spanned just eight or nine months.
–Economic weakness is inevitable, because consumers have lost their housing and stock-market “piggybanks” that gave them so much confidence for so long.
–Fannie Mae and Freddie Mac should have been restrained years ago; Alan Greenspan warned of their potential for mischief as far back as 1995.
–The easiest immediate way to ease the problem would be to revise so-called mark-to-market accounting rules, which have squeezed banks by forcing them to value their loans on a daily basis, rather than over the long term.
McTeer spoke at an international conference on “Risk in a Free Society” sponsored by the Atlas Economic Research Foundation and the Dallas-based National Center for Policy Analysis. He is a Distinguished Fellow at the NCPA.
