Tuesday, September 30, 2008

The Day After the Failed Bailout Vote

Is this current finance and banking panic associated with the fear of reliving the Great Depression? The government desired bailout has morphed into populism at its finest (or worse).

Core to this is that the government will buy the assets in question cheap and sell them at a profit. If these assets are worth something, why aren't non-government entities -- private parties -- buying them? Perhaps this is buy and hold for a number of years and sell when the housing market rebounds? Who's going to manage these properties; handle the upkeep; evict the squatters for the years required for the market to rebound? Some new government agency?

Why is there no talk of letting troubled financial institutions declare bankruptcy? Is that wrong? Is it just too painful? Financially, that's the right answer.
Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable
Let's also get rid of failed entities and policies that caused this problem: Fannie Mae, Freddie Mac, and Community Reinvestment Act. Treat the causes not the symptoms.

A few interesting quotes the day after the failed bailout vote...

"Centralization of credit in the hands of the State, by means of a national bank with state capital and an exclusive monopoly." - Communist Manifesto, Karl Marx, plank #5.
We call it the Federal Reserve which is a credit/debt system nationally organized by the Federal Reserve act of 1913. All local banks are members of the Fed system, and are regulated by the Federal Deposit Insurance Corporation (FDIC). This private bank has an exclusive monopoly in money creation which in reality has ended the need for revenue from taxes. So why do they tax? To FOOL US into thinking we need them.
"When the government fails to pass a socialism bill and the market goes south, let it go south. I don't want to pass a socialism bill just to protect the stock market. This raw deal would make things worse." - Rush Limbaugh

"The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government. The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company." - Jeffrey A. Miron, Harvard University

Capitalism works. If some financial institutions cannot make productive loans, others can. A disaster for one is an opportunity for another.

The so-called "credit freeze" is nothing more than the bad debt holders waiting for the bailout. Bankers would rather get 50 cents on the dollar for their under performing assets from the government bailout than the 20 cents they'd get in the true market.

Why do we think the $700b is all they need? Why not twice that? The government understates everything.

Why do we think the final legislation (that will probably get passed) will not include earmarks for pet projects and programs -- directly from those structuring the bill and indirectly from the lobbyist horde? Government always does the wrong thing.

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