On Bailouts, Congress should Tread Lightly

December 22, 2008

Brookings Guest Scholar Bill Frenzel, a former Member of Congress, says federal legislators should tread carefully when considering bailing out failing businesses.


“To think that Congress can look into someone else business and tell them how to operate is saddening. It cannot, Congress has no capability and no good judgment and no experience in those fields such as banking, investment banking, or insurance, or automobiles as it is now think it’s going to do, and so all it does is confuse the issue and the hold the executive branch back from executing programs that Congress has asked it execute. If Congress sees something wrong with the program it needs to pass a new law, it does not need to hector whoever is managing it in the best way that they can. Now that doesn’t mean all the management is good. Probably a lot of it isn’t. A lot of it at least with respect to TARP is unknown at this point. It takes time for that to work its way through. Many of us suspect that we are not doing quite the right thing, but it’s hard for any of us to know. In general, however, do not expect Congress to do that which it cannot do. Congress can enact laws, it’s very clumsy and slow operating because the framers of our Constitution intended it to be that way, so we have to patient with it, but we should be impatient with Congress when it tries to do things for which it was not intended.”

“…The trend toward what some people describe as nationalization of certain industries of the United States is likely to be continued and probably accelerated if one can interpret the signals that are coming out of the people who are likely to be involved in the new administration. I believe it is not a good trend. I was in Congress when we first voted for the first Chrysler loan, which I thought was a mistake, and there is some good reason for having our bankruptcy laws there is what economist use to call creative destruction of the market system. When companies do not do well they need to be weeded out. At some point when their problems threaten our whole system government feels compelled to act, and should act. My preference is to keep those actions to a minimum.”

“…When we go into specific sectors like automobiles or other forms of manufacturing and I believe that other sectors of the manufacturing area will be coming in for their dip into the public trough. I think we get into great trouble.”