Wednesday, September 24, 2008

Crucial Turning Point

I didn't watch President Bush is address the nation last night, making the case for a proposal by his administration to spend $700 billion in taxpayer money to bail out financial institutions and (allegedly) avoid the complete collapse of the American financial system. I couldn't...because I'm entirely too pissed off about it.

I'm pissed because that's my money. They are using my money to rescue these financial institutions from their own ineptitude. This quote pretty much sums it up on this aspect:

Much of the $700 billion will flow to investment-community friends of Paulson, Bush and other administration figures. Average Americans who behaved irresponsibly by signing gimmick mortgages may get some taxpayer aid from the Paulson proposal, and maybe they should get none. But in the end, average Americans will still be liable for most of what they owe -- that is, will still be held responsible for their actions. Wealthy, politically connected insiders who run banks and companies such as American International Group will be exempt for responsibility for their actions, and will stuff taxpayer-subsidized millions into their pockets.
This action represents a definitive turning point in the history of this country, where we cast off any notion of being a free market society and openly embrace collectivism (or "Progressive Corporatism" if you will). Somehow we're supposed to believe that we need more regulation of financial though that isn't what caused this problem in the first place. Consider what Larry Elder has to say:
Ever hear of the Office of Federal Housing Enterprise Oversight (OFHEO)? This
agency, which employs 200 people, exists for one thing and one thing only – to
"oversee" Freddie Mac and Fannie Mae, the "government-sponsored entities" that
own or guarantee 40 percent of the nation's residential mortgages. Mere months
before Freddie and Fannie's collapse and subsequent government takeover, OFHEO
issued a report that saw only clear sailing. The Community Reinvestment Act,
passed in 1977, mandated that lenders lend to high-risk borrowers – or else. The
government actually held up prudent bank mergers if one or both
sides did not sufficiently "lend" to borrowers who, under normal circumstances,
failed to qualify. Why is the federal government in the housing business in the
first place? We need less government, not more regulation.
Risk is a large part of finance, and a concept that is becoming increasingly foreign not only to consumers in our culture, but also to corporate entities now that they have the safety net of federal bailout. Remove the risk of failure, and people will take increasingly irresponsible risks. Keep bailing them out, and they will never stop doing it. Why would you not take risks if you know there was no real chance of experiencing the negative consequences of failure?

As Megan McArdle points out, "The Paulson plan is not a plan. It's a plan to maybe have a plan at some unspecified point in the future. The basic idea seems to be that we give the Fed a big pot of money, which it hands over to banks in exchange for illiquid securities. Essentially, we're recapitalizing the banks with federal money." She goes on to point out that nearly every conceivable necessary detail one would want to know before signing on for such a proposition is largely absent from the discussion. True to form, the federal government is trying to sucker us into the same thing they did the financial institutions: "take this risk or else, and don't worry it will us!"

Now don't get me wrong...there is most definitely a measure of accountability to which the decision makers in these finanacial institutions must be held, just as those citizens who made foolish choices in taking out mortgage loans they could not afford will be held accountable for their decisions. This proposal thusfar fails to establish such proper accountability. The proposed cap on executive salaries and bonuses does not establish such uses the guise of doing so to further meddle in free markets by trying to somehow legislate against greed. It attacks the symptom rather than the disease.

One Presidential candidate that not only could see this coming but did everything in his power to stop it was Ron Paul.* I am more inclined than ever to write his name in on my ballot this November. He is precisely the type of leader this country needs, and unless we send more men (and women) like him to Washington this country will continue to spiral until their is true tyranny and revolution.

* I would be remiss if I did not admit as well that John McCain saw this coming too in the case of Fanny Mae and Freddie Mac, and proposed legislation to try and fix the problem. That said, the solution to the problem is not more legislation but elimination of much of the legislation that brought the problem about in the form of "affirmative action" style regulations forcing the banking industry to give higher percentages of loans to low-income and other groups that would otherwise not have qualified for these loans. In other words, the federal government mandated that these banks take more and higher risks than they otherwise would have, with the consequence for non-compliance being tremendous restrictions upon their ability to do business.



Post a Comment

<< Home