Herman

Cain

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September 29, 2008

Don’t Celebrate Yet: Many Problems Remain Even With the ‘Deal’

Before the cheers go up for a so-called “Deal reached for Wall Street Bailout” as reported by several sources, here are some sobering reminders.

• The housing market is overbuilt.
• A lot of bad loans were made.
• Consumers have too much debt.
• The United States has too much debt.
• Some banks are operating on the edge.
• Some businesses may not be able to make payroll.
• Some more people will lose their jobs.
• The public deserves a lot of answers.

The ripple effect of the success of the “deal” will not be known for years. Just as the 1989 government bailout of the savings-and loan industry took about five years to help stabilize the markets.

In contrast to the potentially disastrous ripple effect down from Wall Street to Main Street if nothing had been done, the success of the “deal” will depend on the ripple effect up from Main Street back to Wall Street.

When businesses are able to make payroll without any more layoffs, and they are able to borrow money for short-term cash flow needs, and their business is picking up when consumers can afford to spend again, and people are buying houses again, then maybe we can take a deep breath.

We do know that there will be some economic pain at all levels while the entire free market system tries to recalibrate itself. But in order for the economic recovery to last, consumers and the federal government have got to stop spending beyond their means.

Raising taxes and then offering some watered down stimulus checks to people will not help sustain the recovery process. In fact, it would make things worse. Let people keep their money in the first place, and they will decide when and how to spend it.

The biggest issue that must be addressed is failed accountability by Congress, some CEOs and some boards of directors. I am less concerned about CEO compensation than I am about CEO performance and board accountability to its shareholders. And now with the “deal”, those companies and their boards who choose to participate are also accountable to the taxpayers.

An even bigger concern is Congress’s failed accountability with the oversight tools they already have. Before we rush to give them another sledge hammer on businesses, we need to know why they allowed Fannie Mae and Freddie Mac to implode before the administration had to step in.

After all, Fannie Mae and Freddie Mac is where the ripple effect started to unravel. Buying pre-packaged bad loans with “lipstick” was not just greed. It was also dishonest on the part of the sellers and the buyers.

The public deserves a lot of answers before we can celebrate.

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