With momentum building for some form of taxpayer-funded housing rescue, what better time to check in with one of the most ardent bailout opponents, Republican Rep. Ron Paul of Texas? Excerpts from an interview:
What is the likelihood that Congress will pass some form o f large-scale government intervention aimed at stemming the tide of foreclosures?
Oh, I think they will. [Rep.] Barney Frank [a Massachusetts Democrat who is chairman of the House Financial Services Committee] would support that. It's interesting. Barney Frank is a good friend of mine. He and I support things that allow and permit personal risk, like Internet gambling and smoking marijuana. But economic risk is supposed to not be permitted? So I needle him a bit about that. I say, "How come we can't have economic risk?" I want people to take their own risk, and then you wouldn't have these kinds of problems that we are facing today. Are you concerned that the Federal Reserve's actions may be creating a future asset bubble?
Well, if they are lucky they might get one going and keep it alive for a year or two. But I think [the Fed's actions] do reassure the markets in the short run, shorter each time. Because when the Fed makes these announcements, the market might jump up 400 points, [and investors say] "Oh yeah! They're doing something! They're doing something!" But everything that they do is an attack on the value of the dollar, and that is the crisis that they are facing. They cannot have all these bailouts—whether it's bailing out homeowners, or mortgage companies, or banks. If they do it by just the creation of new credit, eventually they destroy the dollar. So I think we are going to face something much greater than the crisis we faced in 1979 and 1980, when we needed 21 percent interest rates in order to rescue the dollar. I think conditions are much worse [today].
So you would advocate allowing a market correction to play out?
Well, that's the proper thing to do, but I'm also realistic so I know that that isn't going to happen. That is what should be done. You have to get the Fed out of the business of economic planning. And with all these plans in place, not only do they want to manage and regulate banks, they want to manage and regulate every institution in the country. I mean this is massive what they are proposing—[the Treasury Department's recently introduced plans to overhaul financial regulation], plus all these housing plans. I think that if there is something on the floor between now and November [that] will be construed as something to help people getting out of their mortgages, nobody will consider that the responsibility of government is to honor and respect contracts. They are going to go and violate everybody's contracts and tell people, "Just because you [received] this loan and you can't pay it [back], we are going to change the rules." But if you and I had a contract like that, we could see that that's not right. You owe me that money, or I want my house back. It's so vague now—who owns these mortgages—they figure, "Well, somebody in China owns these mortgages, so we won't honor the contract."
A number of Republican congressmen—including you—have openly opposed a housing bailout. Is congressional resistance to a taxpayer-funded bailout growing?
In this House of Representatives? Resistance to more government intervention? Boy, I don't know. I just think that when push comes to shove and there's a vote, there's not going to be any resistance to bailing out anybody and everybody. Bad news for the dollar.