Tuesday bailout update: the longer it stews, the more rotten
Topics: Regulation
03 Oct 2008
From: Ervan Darnell
The whole phony political crisis is a shocking reminder that everyone in
Washington is a statist who sees no bounds to how much of the economy
they should be able to control and believe they have the ability to
control well. Even the Republicans who voted against the first version
of the bailout are saying "we" have to do something. No, you don't.
Some Congressperson (and I forget which one) on the News Hour Monday
night said, 'the public has lost faith in the government and we need to
restore it by passing this bill'! No, you have it exactly backward.
The public has lost faith because government interventions are usually
self-dealing failures. Restore faith by proving you have the restraint
to do nothing. Curious too that, in this case, most of the public is
against the intervention (I think for the wrong reason, but I'll take
it). Congress is going ahead anyway.
But, it just gets worse, the compromise is using the fake political
urgency to tack on unrelated stuff making it even more expensive, e.g.:
> [energy tax credits, AMT changes, CEO wage price controls] The revised
> bailout bill also includes a "Mental Health Parity" provision, which
> would require health insurance companies to cover mental illness as it
> would physical illness. [1]
and many others completely unrelated to bad mortgages. The Thursday
(10/2) Newshour reported $150G in pork barrel to bribe Congresscritters
into voting for the main package. That alone is reason to vote against it.
Then there is the fantasy part:
> But over time, supporters say, taxpayers are likely to make back much
> if not all of the money the Treasury uses because it will be investing
> in assets with underlying value.[1]
In that case, supporters should buy the troubled banks themselves and
make a profit as well as doing a good deed! The fact that they aren't
proves they don't believe their own lie. True, the ultimate cost will
not be the full $700G as the nationalized assets have some value, but it
won't be $700G.
Of course, I it could go either way. It might be profitable, or it
might be an even bigger loss. If 5 years down the road, the government
says 'look, see, we made a profit' that doesn't prove it's a good bet
now (indeed, if that happens, it's an even worse outcome in some ways).
> SEN. BARACK OBAMA (D), Illinois: If this is managed correctly, we will
> hopefully get most or all of our money back, possibly even turn a
> profit on the government's investment, every penny of which will go
> directly back to you, the investor, or will be going into drawing down
> on our national debt. [2]
And people are voting for this guy because he understands economics?
Then he says:
> And if we do have losses, I've proposed to institute a financial
> stability fee on the entire financial services industry so that Wall
> Street foots the bill, not the American taxpayer.
which is an even worse idea. This is like the sick tax to run hospital
ERs. That is, Obama's proposal is to punish those financial
institutions who were sensible to reward those who weren't. That's an
even worse moral hazard than funding the bad ones from general tax
revenue. The last clause is worth pondering for a moment as well as it
reveals a systematic error that liberals make: that corporations are
individuals with money who can be taxed without consequence. What does
Obama think is going to happen to taxpayers checking accounts and mutual
funds when their (still solvent) banks are hit with a huge new tax?
Then there is the question of what is and what is not a "financial
service industry" company.
> SEN. MITCH MCCONNELL (R-KY), Senate Minority Leader: We've got a
> genuine crisis in the credit markets that have to be dealt with. And
> the market sent us a strong message yesterday that no action is not a
> solution [2]
Gack, even the conservatives are anxious to intervene.
There is another hidden message in here. The bill failed at all (and
hopefully will fail again) because of bipartisan rancor (Pelosi
criticized Bush in her speech and some Republicans withdrew their
support). This is a good thing. Single party rule (as we're headed
toward) will grease the skids for this kind of boondoggle.
[1]
http://money.cnn.com/2008/10/01/news/economy/senate_rescuebill2/index.htm?eref=rss_topstories
[2] http://www.pbs.org/newshour/bb/politics/july-dec08/repsreact_09-30.html
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