(Washington, D.C. : Right Commentary): Today, the markets positively responded around the world to the statements of Secretary Paulson, Chairman Bernanke, President Bush, and others, that the United States will intervene to provide liquidity in the US financial markets and will help unwind the mortgage debts that are riddled throughout the US banking system and waiting to go off like time-bombs. Some are calling this a bailout - it is. Some of my conservative colleagues are criticizing the entire approach - saying conservatives should oppose it. I fundamentally believe that case is wrong - intervening during a time of market failure is entirely appropriate and consistent with conservatism. Ultimately, it will be up to Republicans to ensure that we restore transparency, accountability, and recapitalize the markets so that they will function again, as opposed to essentially socializing home lending (again) and blowing trillions out of the US coffers without any accountability.

Let me first address the accountability issue because I think it goes to the heart of conservatism. Some Republicans are expressing concerns about writing essentially a blank check to the Bush administration.

“They’re lurching from one crisis to another,” Richard Shelby (R-AL) said. “They don’t seem to have a superplan to deal with this. … We want to see the plan. This is not a done deal yet. But we know there’s crisis, there’s stress, in the financial markets that we haven’t seen in, say, 70 years.” Sen. Jim DeMint (R-SC), a member of the Joint Economic Committee, told the LA Times this morning: “What is missing from it and from the recent string of bailouts is a commitment to return to a free enterprise economy. … What we need now is not what could be nearly a trillion dollars in new taxpayer bailouts but pro-growth policies that allow our markets to correct and start growing again.” Conservative/Republican blogs are also criticizing the deal - calling it communism, socialism, and that Republicans are selling out because people are not being held accountable.

First, accountability is a government issue at this point. The people who lost their houses - they’re clearly being held accountable. The inability of people to get loans now - that’s accountability as well. The reduction in the values of people’s homes - that’s accountability. The depreciation in people’s 401K and retirement money, as well as their stocks, bonds, etc., as a result of the investment banking meltdown. That’s accountability as well.

Who hasn’t been held accountable? Congress - for one. The way that Fannie Mae and Freddy Mac operated is shameful. Congress did nothing. When you go to vote in November - you will get your chance to hold them accountability. Congress completely abdicated their role to ensure the transparent and orderly operation of US financial markets. Instead, it passed obtuse regulations, set up shill guarentors in terms of Freddie and Fannie Mae, and refused to ask hard questions of Treasury and the Fed when banks started failing. Perhaps in part because Senators like Christopher Dodd were busy profiting from sweetheart loans.

Next? Wall Street and the Banks. Option Arms? Choose your Payment? Are you kidding me? Banks wrote loans to debtors who had never any business in getting the loans they received. Wall Street securitized, derivatized, and repackaged that debt, and made it virtually indistinguishable from other types of instruments. Since the risk was not transparent - as brokerage houses, big banks, and Fannie/Freddie bought it all up, we seeded a ticking time bomb.

Next? The boards of Fannie Mae and Freddie Mac. Shameful. Daniel Mudd (former CEO of Fannie Mae - and oddly enough - a distant relative of Dr. Mudd - the physician who treated John Wilkes Booth) is entitled to receive cash severance of $1.98 million (two years of base salary) and a cash bonus of $2.23 million, according to Fannie Mae’s 2008 proxy filing. Richard Syron (Freddie Mac) should get $1.10 million (one-year’s salary) and a cash bonus of $2.64 million, according to Freddie Mac’s 2008 proxy filing. Are you kidding me? I’m sorry - their compensation should be subordinated to the payout against taxpayers. Their mismanagement of the GSE’s over the last three years lead to their implosion. Let them stand in line as unsecured debtors along with everyone else. Moreover, if I were the government, I would say they were being discharged for cause - their mismanagement. Let them bring their wrongful termination suits or whatever else they contemplate. Let those board members try and find 12 jurors who will sympathize with their argument that they’re owed millions while the taxpayer foot the bill for their mistakes.

Next? The Fed. First - Alan Greenspan. Greenspan for almost half a decade railed against conventional loans as being expensive. The Fed encouraged creative lending. It would have worked - if anyone had even asked the buyers “um, do you even have income?” A considerable amount of debt was bad even if the mortgage implosion had not happened. A good deal of debt - encouraged by the Fed and Greenspan - was incurred because of the drumbeat of SELL SELL SELL mortgages.

Next? The Fed (again). Bernanke idly sat by and fiddled while Wall Street burned in July of 2007. That “spark” blew up the market and got us where we are today. While sitting on interest rates - deciding this was a minor liquidity problem and offering a paltry sum - then over-reacting in March with frantic cuts, massive lending, and whirlwind speculations about bailouts, it sparked the downward spiral.

There are accountability issues. The taxpayer should not be completely responsible for the collective mistakes of the financial industry. Taxpayers benefited to some degree from cheap money and increasing home values. However, that benefit is paltry compared (and their ability to have influenced the meltdown) is paltry compared to Wall Street, the Fed, the Treasury, and others.

Finally on accountablilty, the taxpayers should have their interests protected. The Resolution Trust Corporation approach ultimately did return to taxpayers more money (over time) than it expended to liquidate the debt. This “new deal” needs to be structured to ensure that that taxpayer acts a bridge - not the underwriter - to stability. Democrats should not seize on this opportunity as a time to socialize the market.

As a responsible conservative - should you support intervention?

I think as a conservative, it is completely consistent with conservative values for the government to do for the people that which they cannot do for themselves. The average person had zero way of understanding the lack of transparency, the nature of derivative investments, and the depth of deception that was being thrust upon the US economy. As a result, the markets (until today) essentially came to a grinding halt and stopped functioning. The Fed and the Treasury tried to stay out, thinking that was the right thing to do. However, the BETTER thing to have done would have been to have stopped the inequity of the banks holding all the cards and knowing the risks, while keeping everyone else, including most homebuyers, in the dark. No doc - low doc - stated income loans? They’re a problem, but only because in the end banks said those loans were as safe as loans made to qualified buyers who could have, even in the worst of times, paid their mortgages.

Intervention at this point is appropriate because we need to stop the bleeding. I am not exaggerating when I say that had the Fed and the Treasury not acted last night (or soon) the US financial system could have collapsed. It was that close in my view. The panic yesterday of every major central bank pumping money furiously into the system should give an indication of just how badly damaged the world-wide economic situation is. You had venerable funds, money market managers, and otherwise stable banks, imploding because of the rush of redemptions against their reserves. The painic in the markets had caused them to seize.

And even with this bailout - world wide recession is not out of the question I might add. The pain as we work through all of this - even with new liquidity - will be high.

As Republicans we should remember - the business of America is business. A sound and safe financial system - free from distortions - has clearly been a Republican goal. When the markets failed to function, instead of answering that problem with regulations, and more obfuscation, the right thing to do was to intervene, stop the bleeding, and begin discussing a recapitalization and restructuring of the debts.

However, Republicans need to make sure this is not a bailout. The taxpayers should not be left on the hook to essentially insure that everyone is made whole. People need to accept losses for their mistakes. The first and foremost goal, however, needs to be ensuring the markets begin to function in a transparent, stable, and well capitalized fashion. To do that - we may need to expose the taxpayers to roughly $1.3T (my estimate) in debt. However, comparing that cost to complete collapse - $15T and the end of US financial leadership - it’s a paltry sum to pay. Paltry sum. This intervention was literally a hail Mary pass to keep the entire fabric of Western capitalism from unraveling.

The conservative solution to this problem is to make the markets work again - not bail everyone out. However, first we have to stop the bleeding. Second, we need to restructure the market capitalization. Then third, we need to hold those who through their mismanagement, and criminal behavior, collectively caused all of this mess.

As a conservative - I’m willing to pay the 1.3T dollars to save the US economy… just like I was willing to spend over a trillion dollars fighting for freedom in Iraq, Afghanistan, and in the Global War on Terrorism. This threat to the United States needed to be dealt with and in a logical way… because stability in the US markets is priceless.

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