Tag: bailout

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free trade & free markets national politics & policies too much government

Don’t Bank On It

It’s not a chorus.

If you’ve been watching the “debate” over how best to con American voters into giving troubled banks $700 billion for bad loans, you might think it’s a chorus in the financial industry, especially from bank presidents.

You might assume they’re all shouting: GIVE US THE BAILOUT MONEY! NOW!

Not so. At least one banker dissents. John Allison, president of BB&T — with $136 billion in assets and 1500 branches — sent an open letter to Congress protesting the bad economics behind the bailout. He notes that his own company, though affected by the downturn, is in a much stronger position than many of BB&T’s competitors.

Why? Well, his bank did not join the orgy of bad lending, despite the enticement of the Federal Reserve’s easy credit policies and government pressure to give loans to bad-​risk borrowers.

So why should the government reward the bad economic conduct of institutions that played along with the bad government policies? Why make it harder for the economy to recover by punishing sound and productive economic conduct with burdensome new government taxes?

Allison thinks the debate has suffered from domination, as he says, by those “financial institutions [that] made very poor decisions.”

Perhaps it’s because politicians have a whole lot more in common with foolish decision-​makers than wise ones.…

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets national politics & policies too much government

$700 Billion Bad Bet

The administration’s proposed $700 billion bank bailout has finally passed the Congress — in large part because of fear that the economy would crumble if “something” wasn’t done.

But the magic men in Washington don’t have any guaranteed fixes in their bag of tricks. Certainly robbing the taxpayers of $700 billion — that’s a billion, 700 times — won’t cure the economy.

It will, long run, hurt the economy. How? By hampering realistic adjustment to current market conditions. It means taking $700 billion from productive economic activities to buy up debt at prices nobody in the private market is willing to pay. As economist Arnold Kling points out, “If [Bernanke and Paulson] were taking their plan to a venture capital firm to seek funding, they would be laughed out of the office.”

How did we get here? In previous years, the federal government compelled banks to give mortgages to persons who really couldn’t afford them. Meanwhile, the easy credit policies of the Federal Reserve made it easy for banks to obey these irresponsible demands.

Hence the housing bubble. Which popped.

The only long-​term solution is to get the government out of the market. Stop trying to paper over the horrendous consequences of past government interventions with even worse government interventions. The free market ought to be free. Otherwise, we’ll one day end up with no market at all.

This is Common Sense. I’m Paul Jacob.

Categories
free trade & free markets too much government

Stimulus, Response

Wall Street and the real estate markets have taken big hits, and so, to prevent a major recession, our president and representatives immediately began one-​upping each other about a “stimulus package.”

And my thoughts go back to my classroom days. In biology.

There were these frogs, see. Dead frogs. On the table. Some of the kids would take a battery with some wires attached, and prod the dead frog, stimulating nerves to make the dead, half-​dissected frogs jump.

Half the boys in the class thought it a hoot, half the girls thought it gross. Or maybe more than half.

Sometimes I think this is about as much as we ever were prepared for thinking about stimulus packages.

The economy is not a dead frog. it’s alive, and it’s received a shock. A better analogy might be to someone who’s received a blow to the head. You don’t necessarily immediately start applying shock therapy to get the person moving. Ask a nurse what to do. Most of the time, the body repairs itself. In due time. With care taken not to jar the person again.

But a blow to an ecosystem — like an economy — is more complicated than even some guy with a concussion. And, listening to the debate over the stimulus package, and then reading actual, astute economists consider the politicians’ proposals, and Iâ’m thinking …

Frog or no frog, the stimulus notions politicians prefer seem more directed towards influencing voters than getting the economy to jump back into action.

This is Common Sense. I’m Paul Jacob.