By RONNIE ELLIS
CNHI News Service
September 16, 2008 04:57 pm
—
U.S. Sen. Jim Bunning says the country is in recession and has been for “four or five months,” and those responsible for monitoring the financial markets “failed to do their job properly.”
Bunning, a member of the Senate Banking Committee who has an economics degree from Xavier University, has long criticized Federal Reserve Board policy and its leaders – first Alan Greenspan and now Ben Bernanke.
“The fact we’re right at 20 percent (market decline) makes it a bear market in my opinion,” Bunning said. “We’ve been in a recession for about four or five months.”
The government reported last week the economy has lost 605,000 jobs through August of this year. And stocks fell sharply Monday on the news of the financial woes of two huge investment banks, Lehman Brothers and Merrill Lynch. Early Tuesday, the stock market plunged another 100 points but rebounded after news the Federal Reserve left benchmark lending rates unchanged.
Bunning opposed federal bailouts of Fannie Mae and Freddie Mac, the government-chartered but privately traded mortgage giants, prophesying it would prompt other poorly managed companies coming to seek handouts. That’s what happened this weekend when Lehman Brothers and Merrill Lynch faced collapse.
But this time, the feds said no.
Lehman Brothers filed for bankruptcy and Bank of America bought Merrill Lynch. And the government won’t pay severance packages for CEOs of Fannie Mae and Freddie Mac, which Bunning opposed.
“I applaud the (government) for their decision,” Bunning said. “Rewarding individuals who fail to do their job properly is not the way we do business in America.”
Bunning said those whose savings are in FDIC-insured bank accounts needn’t be too concerned but those with savings in stocks should consider moving them to bonds. He said Social Security is not at risk.
“I wouldn’t worry about it if I were the ordinary American out there,” Bunning said.
Bunning called the investment banks’ business model a failed one, investing wildly in high risk, speculative housing loans.
“You know how long the Banking Committee has been calling for regulation on hedge funds and derivatives?” Bunning asked Kentucky reporters on a conference call Tuesday. “At least 10 years, and every time we did, Alan Greenspan or Ben Bernanke said, no, they’re serving a purpose and we need them.”
He said American International Group or AIG, the world’s largest insurance company which is also facing financial crisis, should be allowed to fail.
“Absolutely,” Bunning said. “That’s what our financial system is all about. You reward people who are bright and know what they are doing and other people fail. If the federal government intervenes, how do they choose who are the winners and losers.”
He said automobile giants GM, Ford and Chrysler and airline companies were preparing to ask for federal aid, but “that’s the worst thing we can do.”
He said if companies “are too big to fail,” if their collapse damages the financial system as those calling for government assistance maintain, then “our financial system is not working properly.”
RONNIE ELLIS writes for CNHI News Service and is based in Frankfort. He can be reached by e-mail at rellis@cnhi.com.
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