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Bailout splits Ky. GOP delegation

Congressional Republicans found themselves in an awkward spot last week when asked twice to approve a $700 billion government bailout of the country's financial markets.

For traditional, small-government-free-market conservatives, it was an expensive affront to the values that they have clung to and campaigned upon. Many who hold such views were among the 108 House Republicans who opposed the bailout bill that passed the House 263-171 Friday.

Other Republicans defended the plan as a necessary step that government had to take to keep the free market working, even if the move was far from free.

"I found myself unwilling to gamble on my people's future and feared that simply sitting idly by would put this country into its deepest financial recession in a generation," Republican U.S. Rep. Hal Rogers of Somerset said in a statement after voting for the bill.

But such action represents a "huge role government is now playing in the private sector," said Ken Troske, director of the Center for Business and Economic Research at the University of Kentucky.

"We have a group of Republicans who, in many ways, are suggesting through this legislation that they do not have the fundamental belief in the market to deal with the problem," he said.

The Republicans in Kentucky's congressional delegation illustrated this philosophical divide. They split equally on the bailout vote.

Rogers and Rep. Ron Lewis of Cecilia were among a minority of Republicans who voted for the plan's first draft Monday — which failed — as well as the final version Friday. Republican Senate Leader Mitch McConnell of Kentucky called that chamber's passage of the revised bailout one of the "finest moments" in the history of the Senate.

He later said it was "in the best interest of our Main Street economy."

On the other side, Republican U.S. Sen. Jim Bunning, who has consistently espoused a view of keeping government's hands out of the markets, blasted the bill Wednesday. He said bad governmental and monetary policies that led to the current crisis "cannot be fixed by just throwing money at Wall Street."

Republican Reps. Ed Whitfield of Hopkinsville and Geoff Davis of Hebron also sided against it.

Whitfield said he wasn't opposed to any government action. What he objected to was what he called Congress's "unwillingness" to consider other proposals that didn't put the taxpayers on the hook for billions of dollars worth of toxic securities poisoned by bad mortgages that are at the root of the financial mess.

"I think it's apparent that there needs to be government intervention because of the uncertainty that's out there and the fact that the experts who follow these things are saying that availability of capital is going to be more and more difficult," Whitfield said in an interview.

But he said many congressional Republicans "don't think the circumstances warrant government involvement at this time."

It remains unclear whether Davis, the other Kentucky GOP congressman to oppose the bailout bill, voted against it for that reason.

Davis issued a statement after Friday's vote saying the bill "may give the markets a short-term fix, but it is not a long-term solution" and added that it "does a major disservice to American citizens and to the American free market system."

But Davis didn't elaborate. And he declined repeated requests last week by the Herald-Leader to discuss his economic philosophy and what role he thinks government should play during this turmoil.

Most likely, it will take years to determine which side ultimately is correct. And even economists have been divided.

For instance, Troske of UK said he doesn't buy the argument that the federal government had to act by swallowing billions of dollars worth of devalued securities.

"All the government does by buying it up is transfer the loss from the individual companies to the taxpayers," he said. "All this buyout does is take the pain ... and postpone that to sometime in the future."

He said he would have favored letting the free market purge itself of the toxic securities just as the human body reacts to bad food. It might cause some pain and discomfort through job loss and an economic slowdown, but "in four to five years from now, this will be out of the system."

"The market will punish people who make bad investments," he said. "That's what markets do."

But Charles Haywood, former UK business college dean, said lessons born in the Great Depression have shown that swift and wise action by the federal government can stave off disaster.

"We have a mixed economy," he said. "We have had government intervention for almost 75 years in the housing markets. Now let's see the government get in there to clean up the mess that's occurred over the last seven or eight years with the over-expansion of housing."

In fact, Haywood said he'd like to see Congress do even more, such as renegotiate mortgages for those people in danger of losing their homes.

"If the government in 1929 to 1933 would have acted more aggressively to solve the problem of the collapse of the stock market and the decline in the economy, we would have not suffered the same loss that we did," he said.

This time, those choosing quick government intervention prevailed. But it remains to be seen whether Congress acted deliberately enough and chose the right path to stop the financial hemorrhaging.

"I want to say that I hope for the best with this bill," Bunning said in an official statement entered into the congressional record. "I am going to vote against it, and I hope that I am wrong."

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