Thursday, September 25, 2008

What’s Wrong With the Bailout Bill?...

The current agreed upon bailout is predestined to be an absolute abortion because it’s now going to be overseen by the very people who caused it – government bureaucrats. I KNOW, the WSJ just proclaimed that "Paulson’s plan may ultimately make a $1 TRILLION to $2.2 TRILLION PROFIT for the fed!" And for all I know, that may ultimately be true, BUT it is designed FIRST and foremost to let those MOST responsible off the hook.

The problem at the base of all this is the backing by both most Liberal Democrats and many Moderate (socially Liberal) Republicans is the idea of “credit socialism,” which is predicated on the view that, "Since access to capital is the primary access to wealth creation, then the poor should not continue to be shut out of that wealth creation tool simply because of some stodgy old lending practices, many of which originated in a bygone era."

Guess what?Human nature hasn’t changed in over three millennium, let alone a few hundred years, so the arguments in favor of “creating credit out of thin air” and extending that credit to the poor (the reckless and irresponsible) is an idea so devoid of reason that it should exclude anyone who holds it from ever being taken seriously again.

BUT the purpose of this bailout is only secondarily to maintain the corporate underpinnings of our economy, which government bureaucrats have eroded, and only tertiarily the homeowners who’ve gotten in over their heads. ANYONE who didn’t compute their future obligations against their current life-expenditures, the new property tax and utility bills that will come with their new abodes SHOULDN’T have been lent any money to begin with. The PRIMARY purpose of this bailout is to cover up the culpability of the government and the army of bureaucrats who caused it.

THAT is the most important aspect of all this from the government’s end.

So that’s why the current ongoing FBI investigations will lead anywhere EXCEPT into the offices of Fannie Mae and Freddie Mac, and even if they do lead there, they WON’T soon be frog-marching any of the former politicos turned pseudo-investment bankers out the front doors on the well-deserved charges of malfeasance.

We won’t seen ANY investigation into Congress and its banking committee that embraced credit socialism in the most bipartisan of ways. It’s ironic that the root cause of the current crisis, all those bad loans and “bad paper” reshuffled as “government-backed mortgage securities” was the result of the 1990s ill-conceived assault on red-lining (charging higher interest rates in high default areas) and “relying too heavily on credit scores” with their "disparate impact on various minority groups"...and, of course, “the poor.”

THAT is the foundation of the current debacle and THAT is the culpability of the government, ESPECIALLY the Liberal Democrats and Moderate Republicans that embraced the failed ideology of credit socialism.

What the bailout is, is nothing short of a whitewash, the Liberals ensconced in government have bargained to eradicate government’s culpability in order to shield their own primary role in all this. This is a distinctly different issue than "Is the bailout necessary," as given the circumstances and what's at stake, some such plan certainly is needed, it's what will get "lost in the shuffle" that's the tragedy here.

IF this had been a “failure of Capitalism” or IF it had been a “scandal comprised of Conservatives,” (1) the Liberals would be crying out, “Let the heavens (government) fall, so long as we can oust the root cause of this scourge” (the Conservatives) and (2) the complicit MSM would not allow such a whitewash to occur without doing their part to expose the Conservative and/or free market nature of the scandal.

None of that bodes well for Conservatives and Libertarians, whose representatives seem to feel that it’s more important to preserve the people’s “faith in the integrity in government” than to do what is right and to expose the outright calumny amidst their fellow politicos on the Left. Hell, Left-wingers like Harold Meyerson has already tried to lamely blame a non-existant Laissez Faire Capitalism for the mess, "...Change the terms of the nation's economic discussion from the course we should take, and the defects of the laissez-faire model that got us here..."

Imagine IF the current crisis really WERE the fault of Capital Markets?! But still, is this really a response born of fear? As in, “Don’t take on the Left directly, as their attack dogs (the MSM) will savage us,” OR is it something even worse, say, moral cowardice?

In my view it really doesn't matter, as neither, in my opinion, bodes very well for us on the Right.
UPDATE: At this hour the Paulson plan looks dead, as Congressional Republicans are said to have scuttled it in favor of "an alternative plan," because they didn't find the protections for taxpayers in this one acceptable. So apparently John McCain's been right all along that "There is no deal in place."
There are reports that Congressional offices have been flooded all day with calls from constituents telling them NOT to go ahead with the deal.
I don't think culpability was an issue in the blockage of the Paulson plan, though I hold out a slim hope that THAT may also have been a sticking point. Government, including its GSEs need to be held accountable for their role in all this.


Rachel said...

There are reports that Congressional offices have been flooded all day with calls from constituents telling them NOT to go ahead with the deal.

I defend the Republicans reluctance because they (and Dems too I bet) have been catching hell about the bailout for the past couple of days. And they are being re-elected in a month. So they are pretty much stuck.

I was disapointed there was no bailout, for fear of a recession. However, after reading the Miami Herald about how economists feel about the plan, I feel a little bit better

my fear is how will the markets react? Will they rescind out of fear or force?

Roger Ellis said...

One of the basic principles of the free market is that some companies succeed and others go broke. This is the way that customers collectively reward or punish corporate behaviour. It seems that the Banks, CEOs of corporate America and the Bush administration wish to use taxpayers dollars to help corporate leaders avoid the consequences of their poor decision-making. So this meltdown and bailout is either a failure of capitalism (which a bailout would acknowledge) or a waste of taxpayers money.

JMK said...

I have two major problems with the current bailout scenario; The FIRST is that it fails to address the basic cause of this problem which is "credit socialism" - extending credit to poorer, higher risk borrowers, initially at a "slightly higher cost to all other loan consumers."

As you might guess, I oppose all such ideas on the grounds that it's ALWAYS and EVERYWHERE wrong for a government to seek to benefit one group at a cost to another. That's my view on that and nothing has been offered to change that view. Still, the idea of "credit socialism" and the use of both Fannie Mae and Freddie Mac to implement that has NOT been even acknowledged, let alone punished.

In fact, one of the leaders of the charge of "credit socialism" (Barney Frank) is now saying the crisis is due to a "failure to regulate!"

SECOND, this idea that "It has to be done NOW, no waiting, no thinking about this," smells of a bad deal.

I've heard that 62% of Americans polled oppose the bailout at this point and that is almost certainly because it hasn't been sold correctly. Most people, rightly or wrongly see it as bailing out Wall Street fat cats, not staving off a foreign investment pullout.

I' figure a deal will be hammered out, but the question will remain, "How can we be sure that THIS bailout, much of designed by the people most responsible for the current crisis (Barney Frank and Chris Dodd) will fix the problem?

I know I have my doubts.

JMK said...

"So this meltdown and bailout is either a failure of capitalism (which a bailout would acknowledge) or a waste of taxpayers money." (Roger Ellis)
We DON'T have a "free market" in America NOR ANY Western European nation, Roger.

The closest thing to a free market in the world today are Hong Kong's and Singapore's economies.

Just as there are NO "socialist" economies in the Western industrialized world today either. Socialism is predicated on the elimination of private property rights (the private ownership of homes, land and businesses).

The closest things to real socialist ecomnomies today are Haiti's, Venezuela and Zimbabwe.

America, Japan and Western Europe all have Corporatist economies.

The idea that such things as a larger, more generous welfare state, a gauranteed income and free health care are "socialistic ideas" is ahistoric and inane.

ALL those ideas are fascistic ideas...they were all advanced by earlier fascists like Musolinni, and I'm not belittling those ideas by acknowledging that. Many, perhaps even MOST of Musolinni's ideas actually worked - the gauranteed income, and other huge giveaways, not as much.

Suffice to say, the U.S., Japan and Western Europe ALL have Corporatist economies - highly regulated economies, in which the government PROTECTS large, established companies by regulating smaller, more innovative start-ups out of the market.

Corporatism trades AWAY some of the incredible productivity and prosperity that an unbridled free market generates in exchange for more stability and security for both workers and their employers.

What the current mortgage meltdown is all about is failed regulation and it was "failed regulation" because it sought to engage in some bone-headed social engineering.

The idea that "credit socialism" is predicated on, that "poor people shouldn't be excluded to the primary source of wealth creation (capital markets via credit) merely because they are "poor" and thus "high risk," according to financial institutions," is NOT, as Bill O'Reilly and others have said, "a noble one," it is an extremely ignoble and unworkable one.

BOTH wealth creation and poverty are caused by human behaviors and BOTH are deliberately created - wealth creation via self-discipline, ruthless taking advantage of opportunities and delaying gratification, and poverty by recklessness and irresponsibility, sloth and the inability to delay gratification today in hopes of something better tomorrow.

In so much as government action CANNOT control the free actions of free individuals, government is powerless to help poor and self-destructive people make better choices, any more than it can help others who possess more valuable skills and overarching ambitions from accruing disproportionate amounts of wealth.

The current finanical crisis is a failure of social engineering via "credit socialism."

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