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The liberal myth about Wall Street

September 23, 2008 | By Nathaniel Ward

Who do the failing Wall Street firms favor politically? How about energy companies?

The left argues that "the same firms that preached free-market capitalism are now the ones begging for a taxpayer bailout," Heritage Vice President Michael Franc explains on National Review Online.

But this is a myth, as Franc's research reveals. In fact, employees of financial and energy firms who donated to presidential hopefuls overwhelmingly favor liberal candidates.

» Get all the facts—read more on MyHeritage.org

— David Talbot

Eight principles for bailouts

Now that a massive bailout of Wall Street is being debated, Heritage Foundation economic experts have laid out eight goals and strategies for lawmakers to keep in mind as they evaluate the proposed legislation.  

  1. Do not prop up failed or failing institutions. Government should not try to keep failed businesses afloat; instead, as with Bear Stearns, they should "ensure that they are restructured or wound down in a way that does not cause undue disruption in the financial system as a whole."
  1. Do not try to support prices. "Policymakers should not attempt to keep stocks or housing prices from falling to their proper market-determined levels."
  1. Do not allow the government to become the permanent "owner of last resort." Any assets the government buys should be disposed of as expeditiously as possible.
  1. Strictly limit legislation to the immediate need to stabilize the financial situation. "Lawmakers should oppose any and all attempts to expand the legislation being proposed" into a bonanza for special interests or pet liberal causes.
  1. Avoid "moral hazard." Policymakers must discourage others from seeking government support by ensuring businesses receiving taxpayer funds have "skin in the game" and suffer the consequences of their miscalculations.
  1. Carefully define the Fed's role. The Federal Reserve must avoid "unwarranted mission creep" as it exercises its "lender of last resort" responsibilities to ensure liquidity.
  1. Limit taxpayer exposure and keep actions temporary. "Any new mechanism or authority to halt the deterioration in the market should ensure that affected firms pay a cost and be strictly limited in time and scope to minimize taxpayer exposure."
  1. Assure liquidity in markets but require full pricing of government insurance. As it considers providing insurance to money market funds, "the Treasury must ensure that the price of that insurance fully reflects the market risk."

— David Talbot

Other Heritage work of note

  • Education, Family and Religion. The solution to poor schools doesn't lie in ever-bigger government subsidies for education, Heritage's Christine Kim writes in a new analysis. Instead, "the solution to improving educational outcomes begins at home, by strengthening marriage and promoting stable family formation and parental involvement."
  • Protect America. Some in Congress are once again arguing that FEMA should be removed from the Department of Homeland Security. But this would be a mistake, Heritage expert Jena McNeill writes, since it "would simply breed confusion between DHS/FEMA roles, unduly expand government, and increase response time by adding more steps to the process."
  • Health Care. Many state lawmakers are operating under false assumptions and with bad information as they seek to reform their health care systems, Heritage's Dennis Smith argues. He notes that through Medicaid and other programs, state governments are often the biggest driver of rising health care costs as they control both supply and demand. Instead, lawmakers should look to cut costs by 1) using health care funds to help individuals re-enter the private insurance market; 2) redirecting government funds from institutions to individuals; and 3) reforming health insurance markets by reducing counterproductive regulations and mandates and fostering competition.

In other news

  • The Social Security Administration may increase payments to retirees next year by the largest amount in more than two decades. This is certain to strain the budget at a time of record expenditure of taxpayer money.
  • Voters in several states are now beginning to cast their ballots—even though the November election is several weeks away. At least 34 states will allow in-person early voting this year, USA Today reports.

Coming up at Heritage

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Nathaniel Ward is the Editor of MyHeritage.org—a website for members and supporters of The Heritage Foundation. David Talbot contributed to this report.