Nobody spends somebody else’s money as carefully as he spends his own. Nobody uses somebody else’s resources as carefully as he uses his own. So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property. Milton Freidman
by Tina Grazier
Please allow me to vent:
Ive been at odds with myself since the beginning of the lending crisis. At first I felt a bit confused by the contrasting positions of those whose opinions on economic issues I have always been able to trust. Confusion gave way to acceptance that something ugly had to be dealt with and fast. Finally I was just disgusted by the political process.
This problem is particularly sticky because we face a great unknown. No one seems certain about what will happen with or without a plan. The Heritage Foundation and the CATO Institute have both featured articles in support of a government bailout as have articles in the Wall Street Journal and other publications. Walter Williams, Dick Army, Newt Gingrich and others have been squarely against it. Confusion gave way to acceptance that something ugly had to be done…and then the vote came in.
Ahhhhh! Stop!!! Something is phooey, gooey, blooey around here. Breathe, Tina.just breathe.
But…what a difference a day makes. And what a difference one final vote of the US House of Representatives has made. Review of the voting patterns yesterday places the bailout swill in a purely political pot. This emergency may or may not need addressing but one thing is certain, it is being used to advance a fierce game for power. Nancy Pelosi didnt need Republicans to pass this billmany Democrats said no to this bill. What is up?
Look to history. When democrats are in power and Americans are being “ripped off” by BIG business or BAD Republicans what do Democrats do? They demand HEARINGS. They haul the guilty in front of cameras and grill them (after droning speeches by blowhard congressmen designed to make the guilty wither in shame). Think ENRON, Cigarette Manufacturers, energy producers and gas gougersOliver Norththe 911 Commission……Clarence Thomas! There is a pattern here and the pattern has been broken.
Why are these same politicians working so hard to place a covering on this problem? Why are they uninterested in finding and addressing underlying causes? Why are they eagerly attacking GWB and Republicans when there is so much damaging evidence that it is THEY who should be held accountable and it is THEY who should be forced to face the music? (Why have they not stepped down in shame?) Might just be that the sound of FBI footsteps are making them shy.
Nancy Pelosi had the gall to say she wont allow a witch hunt over this.
If you havent yet bothered to watch the YouTube video, Burning Down the House, please do so now.
Also take a look at,
Bailout marks Karl Marx’s comeback, by Jeff White
* In his Communist Manifesto, published in 1848, Karl Marx proposed 10 measures to be implemented after the proletariat takes power, with the aim of centralizing all instruments of production in the hands of the state. Proposal Number Five was to bring about the centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly. *** If he were to rise from the dead today, Marx might be delighted to discover that most economists and financial commentators, including many who claim to favour the free market, agree with him. *** Indeed, analysts at the Heritage and Cato Institute, and commentators in The Wall Street Journal and on this very page, have made declarations in favour of the massive injection of liquidities engineered by central banks in recent months, the government takeover of giant financial institutions, as well as the still stalled US$700-billion bailout package. Some of the same voices were calling for similar interventions following the burst of the dot-com bubble in 2001. *
And there’s more to chew on. Yesterday on the way home from work I heard an offhand reference to the Chilean financial crisis of 1982 on the radio. The person talking (I didnt catch who it was) was suggesting we should follow the Chilean model for repairing this egregious error. This evening I found the following article in the Wall Street Journal:
What We Can Learn From Chile’s Financial Crisis – WSJ
* You wouldn’t know it from all the panicky headlines but the current turmoil on Wall Street is not the world’s first financial crisis. Latin America has suffered more than a few, and many were on a larger scale relative to the economies they hit. *** One was triggered by Chile’s 1982 economic collapse. For a small country it was a lot worse than what is happening in the U.S. today. The Bush economic team could learn from how it was handled. *** The Chilean plan helped the banks recapitalize and protected depositors. It also minimized moral hazard and kept the government’s role from expanding. The intellectual support for economic liberty was preserved and this protected the market system, which over the past 25 years has not only survived but prospered. *** One alternative to the Paulson plan would be to provide secured loans to troubled institutions as a way to allow them to recapitalize. The collateral against the loans would be bank assets (presumably impaired assets) but the transaction would be similar to a “repurchase agreement.” In this transaction, otherwise known as a “repo,” the borrower is required to repurchase the securities, with interest, in the future in order to retire the loan.
Chile used such an instrument to recover from its 1983 banking crisis. It is true that the government intervened directly in two banks, wiping out shareholders, removing management and nationalizing the firms. Those banks were later re-privatized in a sale that gave tax incentives to encourage Chileans to participate in the offering. *** The many other banks that were in trouble were handled differently. For those, the government provided loans that were secured by bank assets, with an agreement that the banks would later repurchase those assets. *** These “repos” had conditions attached, including a provision that the shareholders could not take profits out of the company until the loan was repaid. This meant that shareholders were asked to give something in return for getting rescued by taxpayers; and it gave the bank a strong incentive to get back on its feet and return the money. *** Another advantage of this model over the Paulson plan is that although the Chilean government took the bank assets as collateral against the loan, it did not adopt responsibility for managing the assets. That role stayed with the bank. *** It was important that the government was a subordinated creditor; otherwise it would have been difficult to bring new capital into the bank. But if the U.S. were to use secured loans, it might not be necessary to make the loans at subsidized rates, as Chile did. Chile was in a depression. In the U.S. case, a penalty rate might be preferred in order to ensure that the banks will use the facility only as a last resort. *** It took several years for Chile to recover from its banking crisis and the U.S. will also need time to work off its credit mania. Federal assistance may be required. But that doesn’t mean that we need to hand a blank check to the government that will allow it to expand its powers yet again. *
Yesterdays failed bill offers breathing room; room to do more research and hopefully, for our representatives, to find the best solution for the real problems that caused this mess. I want them to do what is best for America even if it means holding our collective breath and waiting for the possibility of a depression to set in. Whatever is decided about the immediate financial crisis we should demand very loudly that those who set this in motion are exposed and made to bear the appropriate consequences. We should also demand that sound economic policies be adopted immediately. I’m very pleased at the thought that Americans are already busy doing just that.