[Congressional Record Volume 144, Number 135 (Thursday, October 1, 1998)]
[House]
[Pages H9211-H9212]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   FEDERAL GOVERNMENT CANNOT DO ANYTHING ECONOMICALLY OR EFFICIENTLY

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Tennessee (Mr. Duncan) is recognized for 5 minutes.
  Mr. DUNCAN. Mr. Speaker, the headline in Aviation Week magazine last 
week said, ``NASA plans $660 million station bailout for Russia.'' The 
subhead said, ``Payments would be part of $1.2 billion U.S. fix. 
Completion slips to 2005.''
  It seems that our Federal Government cannot do anything in an 
economical or efficient manner.

                              {time}  1800

  The station I am speaking of is of course the Space Station, and the 
original full cost estimate in 1984 was $8 billion.
  This is another old Washington trick. Drastically low-ball the 
estimate on the front end. However, no one should be fooled by this any 
more. It is now estimated that total costs of the Space Station will 
reach as high as $180 billion, more than 20 times the original cost 
estimates.
  Now NASA wants six shuttle flights per year at a cost of $477 million 
per flight and no telling what else. But billions in cost overruns, 
years of additional delays, and now $660 million to bail out the 
Russians, it is all simply too much for a project that is draining huge 
amounts from other more worthwhile, cost-effective research.
  Then, Mr. Speaker, the Federal Reserve has apparently just encouraged 
and presided over another bailout, one of the largest private bailouts. 
Due to pressure from regulators, several large banks and investment 
firms came up with $3.5 billion last week to bail out a hedge fund 
called Long-Term Capital. This is probably the worst case or best 
example of crony capitalism ever.
  The partners of this firm include a former Federal Reserve vice 
chairman and others that Business Week referred to as a ``dream team.'' 
But this dream team used $100 billion in borrowed money and made one 
bad investment after another.
  Paul Volcker, the former Federal Reserve chairman, said, ``Why should 
the weight of the Federal Government be brought to bear to help a 
private investor?'' The answer is that it should not.
  James K. Glassman, the Washington Post columnist, wrote, ``But in 
America today, there's a double standard. A rule that applies to 
welfare mothers doesn't apply to politically connected corporations, 
rich speculators and irresponsible nations. Over and over, when 
powerful people and institutions get into trouble, the government bails 
them out.''
  But, Mr. Speaker, the American people are getting sick and tired of 
all this. Billions and billions to Russia and other countries. Billions 
and billions on a very questionable Space Station. Billions and 
billions to try to stop civil wars in Haiti, Ruwanda, Somalia, Bosnia, 
and now I suppose Kosovo.
  I remember reading three or four years ago on the front page of the 
Washington Post that we had our troops in Haiti settling domestic 
disputes and picking up garbage. And I remember a few months ago on 
this floor when another Member said in Bosnia we had our troops giving 
rabies shots to dogs.
  Well, Mr. Speaker, the Haitians should settle their own domestic 
disputes and pick up their own garbage, and the Bosnians should give 
their own rabies shots; money taken from hard-working Americans to pour 
down one black hole after another.
  Mr. Speaker, many people feel we may be on the verge of a recession 
or at least an economic downturn in this country. The stock market has 
gone down over 400 points in just the last two days. We would not be on 
nearly as shaky economic grounds if liberal big spenders had not caused 
us to be over $5.6 trillion in debt at just the Federal level, and then 
if we had instead followed other very conservative fiscal, monetary, 
taxing, and regulatory policies.
  However, we are on shaky grounds, very thin ice economically, due to 
very liberal policies of all types, including bad trade deals that 
favored large multinational corporations at the expense of small and 
medium-sized American businesses and American workers.
  Now we are losing 3 million jobs a year due to our balance of 
payments deficits, 3 million jobs to other countries. Our unemployment 
is not yet low, but our underemployment is terrible. We have been 
replacing good, high-paying manufacturing jobs with minimum wage 
employment and tourism and restaurants. Many college graduates cannot 
find employment in the fields in which they trained. We are ending up 
with the best educated waiters and waitresses in the world.
  Mr. Speaker, we need trade and economic and foreign policies that put 
this country and its workers first once again. We need to put America 
first even if it is not politically correct or fashionable to say so.
  Mr. Speaker, I include the following for the Record:

             [From the Washington Post, September 29, 1998]

                           Reckless Bailouts

                         (By James K. Glassman)

       The principle behind welfare reform was simple: If you pay 
     people when they don't work, then they don't have an 
     incentive to get a job. The 1996 law cut them off, and since 
     then, millions have left the public dole.
       Economists call the principle behind welfare reform ``moral 
     hazard.'' When people are insured, or protected against the 
     consequences of destructive actions, they are more likely to 
     take those destructive actions. Thus, of able-bodied welfare 
     mothers know they'll get monthly checks, they're less likely 
     to work.
       But in America today, there's a double standard. A rule 
     that applied to welfare mothers doesn't apply to politically 
     connected corporations, rich speculators and irresponsible 
     nations. Over and over, when powerful people and institutions 
     get into trouble, the government bails them out.
       The latest example is a Greenwich, Conn., hedge fund called 
     Long-Term Capital, Ltd. (LTC), which was founded by John 
     Meriwether, a ``master of the universe'' at

[[Page H9212]]

     Salomon Brothers, along with two Nobel Prize winners, a 
     former Federal Reserve vice chairman and other partners whom 
     Business Week called the ``dream team.''
       Using as much as $100 billion in borrowed money, Long-Term 
     Capital made some disastrously stupid investments and 
     teetered last week on the brink of failure.
       What should happen to a firm that makes terrible bets on 
     esoteric markets? It should go bust, of course. Its partners 
     and investors should suffer swift and onerous losses--at the 
     very least as a signal to others to stay away from risky 
     investments in the future.
       Instead, Long-Term Capital is being rescued--not with 
     government money (thank heaven for small favors) but through 
     not-so-subtle pressure placed by government regulators on 
     banks and investment firms to cough up $3.5 billion. It's a 
     classic case of moral hazard run wild.
       Paul Volcker, the former chairman of the Federal Reserve, 
     was justifiably outraged: ``Why should the weight of the 
     federal government be brought to bear to help a private 
     investor?'' Good question.
       The rescuers were brought together last week by the New 
     York Fed at the same time that Alan Greenspan was hinting in 
     Congress that the Fed would cut interest rates.
       The Fed's ``official sponsorship'' (Volcker's term) of the 
     rescue was the result, said a Fed spokesman, of its 
     ``concerns about the good working of the marketplace, large 
     risk exposure and the potential for a disruption of 
     payments.'' In other words, the failure of Long-Term Capital 
     posed a systemic risk; it could set off a cascade of other 
     failures, leading to a sharp decline in bond and stock prices 
     and perhaps bankruptcies.
       I am skeptical the effects would be so dire. Yes, some 
     bonds might plummet, but that hurts current owners of those 
     bonds. Other investors could benefit by being able to buy at 
     the lower prices. Why should the Fed prevent them?
       The truth is that no one knows what would have happened in 
     the short-term if LTC had been allowed to fail. In the longer 
     term, the effects are only too obvious: The rescue will 
     encourage more irresponsible risk-taking by investors, just 
     as the International Monetary Fund's bail out of Mexico 
     encouraged investors to make inappropriately risky 
     investments in emerging markets in Asia, leading to more IMF 
     bailouts and a new moral-hazard cycle.
       Perhaps the Fed did dampen systemic risk in the LTC case, 
     but as Caroline Baum of Bloomberg Business News reported 
     Friday, ``Traders seem to be taking a different message away 
     from the whole affair. They see an increase in moral hazard, 
     with lenders making increasingly risky bets with the 
     knowledge that someone will bail them out, as the doctrine of 
     `too big to fail' spread from financial institutions to 
     corporations to countries to private investors.''
       But we don't need to look to Mexico or Greenwich for 
     examples to moral hazard run wild. Look to Capitol Hill, 
     where a bill is now racing through Congress that would bail 
     out companies that made imprudent bids for wireless telephone 
     licenses.
       The firms bid too high in a 1996 FCC auction. At the very 
     least, it seems, they should lose the $1.3 billion they put 
     up in down payments. But, instead, the House Commerce 
     Committee on Thursday unanimously approved a deal that lets 
     them renege on their bid obligations and get full refunds on 
     what they've already paid the government.
       Not only is that bailout grossly unfair, it will also 
     encourage reckless behavior in future auctions. And, speaking 
     of reckless behavior: There's a parallel to be drawn between 
     moral hazard in the LTC, wireless and IMF cases and moral 
     hazard in the current scandal involving President Clinton.
       Americans worry, for instance, that impeaching and 
     convicting Clinton could hurt the economy and our world 
     standing. This is a legitimate concern--but I'm more afraid 
     of moral hazard. If we let powerful people get away with 
     doing bad things, they will not only do them again, but 
     encourage others to follow their example.

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