Poll Showing Americans Oppose Bailout Alters Debate

As Congress moved into a second day of hearings on the Bush administration’s proposed $700-billion bailout of the mortgage market, a Los Angeles Times-Bloomberg poll seemed to alter the course of the debate as the Congressional hearings began to address the public directly. According to the poll, 55 percent of Americans oppose a government bailout funded by taxpayer dollars regardless of the harm inaction might do the economy. Only 31 percent of Americans favored the bailout, said the poll. In the second day of hearings before the Joint Economic Committee, Federal Reserve Bank Chairman Ben Bernanke fielded questions that seemed tailored to the views expressed by Americans in the poll. Senators and representatives favoring the bailout–Democrats generally–appeared to want to make a case for the bailout for Americans to consider. They repeatedly asked the Fed Chairman what would happen if the bailout were sidetracked. Bernanke responded with doomsday scenarios. “Credit will not be available for small businesses to create jobs or finance payrolls,” he said. “Student loans would not be funded. Mortgage rates would rise and mortgages would become even harder and harder to get. There will be significant deterioration in the broader economy.” Responding to a request to estimate the potential range of loss in gross domestic product that could result from inaction, Bernanke pointed to Japan and noted that a credit crisis that occurred there during the 1980s led to “suboptimal” GDP growth for a decade. While seeming by and large to favor the bailout, Democrats nevertheless continued to insist that any bailout package contain protections for those having trouble paying their mortgages, an oversight board to ensure accountability, limits on compensation paid to executives of companies participating in the bailout and a provision that would give the government an equity stake in participating companies. Democrats also want the judges hearing bankruptcy cases filed by homeowners unable to pay their mortgages the power to lower monthly payments. Conservatives, who generally oppose the bailout, asked Bernanke why Wall Street hadn’t been called upon to pay some of the costs and whether or not there might be a risk of politicizing the bailout if the government took an equity position in return for its investment. Bernanke ducked those questions, suggesting that they be posed to Secretary Paulson. Conservative opposition to the bailout has been growing for several days. Senator Richard Shelby, a Republican from Alabama who voted against the Chrysler bailout in the 1970s, asked Secretary Paulson yesterday what alternatives to the $700 billion bailout had been considered? This morning, he told CNN: “I didn’t get an answer.” Shelby also told CNN that he opposed the bailout and that it might not pass. “It could pass,” he continued, “because the Fed and Treasury secretary and administration… are going to scare a lot of people. But the best disciplinarian of all is the marketplace. I believe if we didn’t do anything, the market would correct it all.” Meanwhile, mortgage industry lobbyists have been pressing for the quick enactment of the bailout plan. In a letter to Congress dated yesterday, John Courson, COO of the Mortgage Bankers Association, wrote: “MBA supports the effort to pass this legislation quickly, but opposes adding unrelated proposals to this bill, primarily efforts to allow judges to alter residential mortgages in bankruptcy.”