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UPDATE THIS EVENING:  CEI’s Hans Bader here: “Treasury Secretary Paulson wants the American people to fork over $700 billion to bail out Wall Street, even though he admits that his prior multibillion dollar bailouts failed to stem the crisis.  Banking expert and law professor Todd Zywicki, a former Bush Administration official, notes that ‘by exploding the national debt, the bailout plan has ignited inflation fears and threatens to ruin the dollar while gold and oil prices skyrocket.’  The proposed bailout has triggered ‘bailout envy‘ and a flood of demands for more bailouts, ranging from insurers to automakers to defaulting mortgage borrowers.” 

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UPDATE THIS AFTERNOON: NRO points us to James Pethokoukis — “Newt Gingrich: Kill the Paulson Plan. Hard.” Click here.

At a press conference today, the House Republican Study Committee(RSC) planned to unveil its alternatives to the bailout here. The RSC urges:

“Two-Year Suspension of the Capital Gains:  Immediately suspend the capital gains rate from 15% for individuals and 35% for corporations.  By encouraging corporations to sell unwanted assets, this provision would unleash funds and materials with which to create jobs and grow the economy.  After the two-year suspension, capital gains rates would return to present levels but assets would be indexed permanently for any inflationary gains.”

“Schedule the GSEs for Privatization:  Transition Fannie and Freddie over a reasonable time period to truly private companies without special government privileges and open them up to real market competition.  This reform would 1) establish commonsense limits for their capital requirements and portfolio holdings relative their size, 2) focus their mission on affordable housing only, not profit making, 3) require them to pay an appropriate risk-based amount for the government guarantee they enjoy, 4) subject them to state and local taxes and accurate SEC filings like every other private for-profit corporation, and 5) ultimately provide for the phase out their GSE charters once their conservatorship has ended.  In a matter of mere weeks, Fannie and Freddie have gone from too big to fail to too dangerous to repeat.  This hybrid illusion must not be allowed to continue.”

“Stabilize the Dollar:  Repeal the Humphrey-Hawkins Full Employment Act which diverts the Federal Reserve’s attention from long-term price stability to short-term economic growth.  In an effort to fuel the economy, this additional mandate has encouraged the Fed to keep rates artificially low, fueling economic boom and busts, and now a strong up-tick in inflation and the decline of the dollar (as investors free dollars for hard assets).  This reform would require the Fed to establish a numerical definition for price stability and maintain a policy that promotes it over the long-term.”

“Suspend ‘Mark to Market’ Accounting:  Suspend the mark-to-market regulatory rules for long-term assets.  These rules require financial firms to mark assets at current market levels, even where the no market exists and any immediate transactions would result in fire-sale prices.  Instead of allowing firms to mark these assets to their true economic value, these rules contribute to a downward spiral as firms have to evaluate their assets not on the basis of their long-term investment but rather on a short-term mania.”

Other influential center-right voices have been pointing to the dangers of the bailout juggernaut. 

Here is the Club for Growth yesterday:

“’The Treasury’s bailout proposal will likely cause more harm than good,’ said Club for Growth President Pat Toomey. ‘Instead of launching the largest government bailout since the Great Depression, the government should be implementing policies to stimulate the economy. These include, at a minimum, cutting the tax on capital gains, cutting corporate taxes, reviewing and considering repeal of FAS 57 which requires banks to mark-to-market most securities, and emphasizing the need for a strong dollar.’”

NRO’s Ramesh Ponnuru here leads us to an illuminating post “Here’s A Plan to Avoid a New RTC” by First Trust economists Brian S. Wesbury and Robert Stein here:

 “Unfortunately, this solution of giving the US
Treasury almost unlimited power to buy distressed
securities could be avoided if the government made
some simple (and temporary) changes to mark-to market accounting rules. So far, and for many unknown reasons, these changes have been considered off limits.”
. . . . .
“It is true that home foreclosures have risen, but a vast majority of mortgages are still paying on time. As a result, the market prices of subprime loan pools today have absolutely no relationship to the actual performance of the bonds. If every subprime loan went bad, and banks recovered just 40 cents on the dollar, the bonds would still be worth 40 cents. But the market has pushed bonds well below that level, taking down venerable firms and causing the government to consider draconian solutions.In other words, mark-to-market accounting, not the reality of the economy or the actual credits, has created much of the financial turmoil that has shaken the world.” (Underscoring Forum’s.)

Readers are encouraged to digest the entire Wesbury-Stein piece here.

John Hood at NRO lays out here three smart rules-of-the-road for conservatives:

“My suggestion is that in seeking to grapple with the challenge, conservatives start with some basic operating assumptions:

1. No matter how good or necessary it may sound, any idea to vastly expand government power that was hatched over a few days should be suspect. It’s probably wrong in particulars, if not in generalities.

2. No matter how good or necessary it may sound, any idea to grant vastly expanded federal power to persons yet unknown — just weeks before a presidential election — should be suspect. It doesn’t take much imagination to see just how terrifying this could be by, say, February.

3. Any plan to force American taxpayers to bail out big business or freaked-out rich people should be suspect. Given the imbalance of political and lobbying power, it’s not hard to figure out who will likely come out on the short end of the stick.” (Underscoring Forum’s.)

As one might expect, the Senate Republican (minority) leader is taking a less critical look at the bailout here:

“Over the weekend, Congress received a straightforward, four-page Main Street Rescue Plan aimed at protecting millions of American families and small businesses from the potentially devastating effects of a credit meltdown.”

South Carolina Republican senator Jim DeMint however takes a different view here:

 “It’s a sad fact, but Americans can no longer trust the economic information they are getting from this Administration. The Administration said the bailout of Bear Stearns would stop the bleeding and solve the problem, but they were wrong. They said $150 billion in new government spending using rebate checks would solve the problem, but they were wrong again. They said new authority to bailout Fannie Mae and Freddie Mac would solve the problem without being used, but they were wrong again. Now they want us to trust them to spend nearly a trillion dollars on more government bailouts. It’s completely irresponsible and I cannot support it.”  

But it is clear that the administration’s engineers have their legislative locomotive on full throttle. Treasury Secretary Henry Paulson declares here:

“Over these past days, it has become clear that there is bipartisan consensus for an urgent legislative solution. 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. This troubled asset purchase program on its own is the single most effective thing we can do to help homeowners, the American people and stimulate our economy.

Earlier this year, Congress and the Administration came together quickly and effectively to enact a stimulus package that has helped hard-working Americans and boosted our economy. We acted cooperatively and faster than anyone thought possible. Today we face a much more challenging situation that requires bipartisan discipline and urgency.”

The Paulson comment on the so-called stimulus package here speaks volumes on this administration’s mind-set. 

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