Friday, September 19, 2008

A Dangerous Precedent

President Bush, Treasury Secretary Henry M. Paulson Jr., and most of the rest of Washington not named Ron Paul have urged the government to spend hundreds of billions more to buy up bad mortgages and save the economy. I don't think even the brightest economists are really capable of weighing in on whether or not this is a good idea. We're talking about a huge sector of the economy that's inseparably tangled with federal monetary policy. Regardless, it's a rather scary precedent. If the government continues to eliminate all the risks of the market, what's to prevent people from taking risks in the future. I know, I know, the response is always more regulation, but the fact of the matter is, if risk is regulated away in one regard, speculators and curious investors will find a different, non-regulated way in which to take risks. And again, the thought that the government will step in to prevent people from losing their shirts will always be in the back of speculators minds.

It just seems logical to me that too many government bailouts can't be healthy in a functional market economy. Also scary was this little bit of wisdom from George Bush:

“There will be ample opportunity to debate the origins of this problem. Now is the time to solve it.”

Solutions when you haven't quite figured out the problem are troublesome to begin with, but such solutions are even more troublesome when they come in the form of hundreds of billions of dollars and binding federal regulation


Anonymous rose said...

" If the government continues to eliminate all the risks of the market, what's to prevent people from taking risks in the future. "

I don't know where I stand on the issue, but I tend to lean towards the idea that certain firms are too big to fail. But one thing I do know is that the people who ruined their perspective companies don't benefit in any way from the bailouts. They've been forcing out management teams at BSC and AIG as terms of the deal. So in essence the people who are taking the risks are not being bailed out and therefore the government is not creating an incentive to continue to take risk.

Maybe I'm wrong, but in order for a bad precedent to be set, doesn't the bail out have to benefit/save the person who made the mistake in the first place?

The only bailout of management I've seen has been the transition of Freddie/Fannie management to Barack Obama's staff.

2:56 PM  
Anonymous rose said...

One other thing. There is very simple regulation that could have at the very least tempered what we're dealing with today.

Raise capital requirements. Don't let commercial banks get so leveraged.

Problem is, whomever would've been promoting this legislation in the past would have been RIPPED by the populists. It restricts how much banks can loan relative to their equity, making banks more choosy. Net result: Banks would've have lended to riskier borrowers....riskier borrowers= lower middle class, working class folks, minorities sometimes etc...

How quick would Barack Obama tear that legislation down with a 30 second sound bite.

"the republicans don't want you to own your own home. they want you to rent. john mccain has 7 homes and he doesn't want you to have one. that's not the america you believe in.

I'm Barack Obama and I approve this message"

blahblahblahblah blahhhhhhhhhhhhh

nice energy bill by pelosi btw.

good stuff.

3:37 PM  
Blogger lonely libertarian said...

I think anyone being intellectually honest doesn't quite know how to react to this whole thing.

And the bad precedent will also come from the very populists you talk about. If the government bails out all the Wall Street fat cats (whatever the reality is, that will be the perception), then why can't the government do something to save peoples jobs at General Motors or other large, failing companies. I worry about that sort of logic engulfing our politics.

And as I was saying, this is where it gets complicated- it's not just that our financial institutions and the government are intertwined, the truth is that you couldn't have one without the other.

3:49 PM  

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