Posted on 09/26/2008 8:29:29 PM PDT by SeekAndFind
“It's a terrible idea. It's undemocratic. It's bad economic policy, and it's bad social policy. And it has a very little chance of solving the problem in a meaningful way.” -- Allan Meltzer, Carnegie-Mellon University
Beware of politicians or business leaders who say, “I’m a firm believer in the free market, but…”
“But” thinkers have come out of the woodwork during this financial crisis: Conservative economist Bruce Bartlett proposes tax increases…..Patrick Byrne, the new CEO of the Milton and Rose Friedman Foundation who calls himself a “classical liberal,” demands that Congress impose a transactions tax on every stock market transaction to stem speculation. (This so-called “Tobin Tax,” named after Yale economist James Tobin, would reduce liquidity and make buying and selling stock more difficult.)
Then, of course, there’s Secretary Hank Paulson himself. A former CEO of Goldman Sachs, he professes to be a strong free-marketeer. "But we must act or face disaster," he warns. Then he proposes the largest power grab in history. Have you seen Section 8 of the bailout plan? It states: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
If this stands, it is giving incredible and unprecedented dictatorial power to the Secretary of the Treasury.
Fortunately, there are a few sane voices out there. I was delighted to see that Allan Meltzer, a famous monetary expert from Carnegie-Mellon, lambasted the $700 billion bailout in a PBS interview yesterday.
Meltzer is writing a multi-volume history of the Federal Reserve. He drew upon his extensive background as a monetary historian to criticize Secretary Paulson’s handling of the credit crisis. “I've listened to governments tell me for 40 years that there was a crisis and the world was going to fall apart if we didn't do this or that,” he said. “But there have been a few cases where they weren't able to do that. One was the commercial paper crisis in 1970. There have been several others. The world did not fall apart.
Consider:
* Last week, we had Lehman Brothers went into bankruptcy. Within three days, most of the assets were sold.”
* AIG had three offers to buy the company before the government took over and offered a better deal.
* Merrill Lynch was sold to Bank of America when it ran into trouble.
* Last night it was announced that JP Morgan bought Washington Mutual’s deposits.
Meltzer concludes, “We need to get the government's hand out of this, and let's see whether we can't get a market solution.”
Given that monetarists often favor intervention during a crisis, it's great to see Meltzer taking a strong laissez faire stance.
Where's J. P. Morgan When We Need Him?
I too am a historian of finance, and one of my favorite stories is the Panic of 1907. It has some similarity to the current situation, because in 1907 there were some runs on the banks and the credit markets froze up. J. P. Morgan, the quasi central banker, invited all the major bankers in New York to his library, locked the doors, and said he wouldn't let anyone out until they had raised the funds to end the credit crunch. It worked.
Secretary Paulson and chairman Bernanke should do the same and not depend on Congress. They should invite all the major bankers to a meeting in New York, and raise capital to solve the liquidity crunch. They might invite Warren Buffett and Alan Greenspan to help out. Meltzer suggests the Treasury might help in lending funds if necessary: “If they're going to do something, then what they ought to do is make loans, which the financial institutions have to repay with interest. And if you think -- that's an idea which the Chileans have used in a bigger crisis than this for them in 1982, and it worked for them.” But it should not nationalize banks and mortgage companies, and get involved in the commercial banking business.
History is holding its breath. In the next couple of days, we will witness one of the greatest tests of American will, whether we will stand for economic freedom or doom ourselves to a new form of tyranny.
--------------------------------------------------------------------------------
Mr. Skousen is a financial economist, author and university professor. He has been the editor of the financial advice newsletter, Forecasts & Strategies, for 26 years. Two of his books highlight Milton Friedman's career: "The Making of Modern Economics" and "Vienna and Chicago, Friends or Foes?." Check out his latest book, "EconoPower: How a New Generation of Economists is Transforming the World." He is the producer of FreedomFest, the world's largest gathering of free minds, in Las Vegas every July.
“It isn’t just Wachovia. National City today, 60% yield. Morgan Stanley, despite a large recent capital infusion from Asia for stock, 40% yield. Bank bonds are simply now traded as junk for any institution with default risk, as being essentially uncovered, because the depositors are senior and the FDIC has shown the bondholders will get nothing, if it is necessary to protect the FDIC.”
actually sorry my question was more in general on credit default swaps, obviously today’s action was a direct result of wm being seized.
As Alan Keyes noted, this bailout is socialistic. It undermines one of the basic operating principles of the free market, that your profits are derived b taking a risk. When we nationalize the risk, we destroy one end of the system, and thus destroy the other.
Furthermore, we bailed ot the banks in 1983 and the result was that we got to this point.
It’s not the taxpayers’ job to bail out the bankers.
When you subsidize something you get more of it; this bailout subsidizes corruption and stupidity. Guess what that brings about.
And finally, a point to make if you have any Democrats in your family: this is a massive transfer of wealth from the working people of this country to the rich.
We beat the Dubai Ports deal. We beat the amnesty bill. We cna beat this. But it will take the same kind of persistence.
Stay on your Members of Congress like white on rice.
btt
So do you want to lose your money as a reckless lender, or have the rich bail *you* out, paying according to the tax code?
Me I'd rather this hit were paid the way we all agree is as close to fair as we've been able to agree on, when something concerns us all. But if you'd rather have the losses be allocated by chaotic bank runs and nimbleness moving assets around the world in a deflationary smash, have at it. You will lose.
>> BAC has $228 billion long term, and $416 billion short term. MER has $697 billion long term, only $19 billion short term
That’s better.
That’s not quite so scary. Now is it? Long term debt does NOT need to be financed at 8%. And that’s by far most of it.
BofA is a solid bank. It’s not alone.
What’s more: in spite of Ken Lewis’s cheerleading for the bailout — do you think BofA will go tits up even if no bailout?
I don’t.
neither does the marketplace. (I mean both BofA/Merrill customers as well as BofA shareholder/bondholders.) I’m going off of observable evidence here.
I’m going to venture that there are some very smart people betting that BofA will succeed, among those other fools like me who merely hope they will.
Now, let me point out something else.
There are trillions of dollars in cash sloshing around this great country.
Not just households, but also businesses.
I realize that you eat, drink, breathe, crap, and spunk “finance” — but guess what? There are LOTS of OTHER businesses other than high finance in this great land. Many, many of them are sitting on big piles of CASH.
What do you suppose they’d like to do with that cash?
Get a return on it, maybe?
Now tell me that after the dust settles and the sucky banky financy houses of cards crumble away as they should, that that cash won’t come out to play — in an environment where value isn’t Paulson smoke-and-mirrors, but more real and tangible?
8%? In a heartbeat. 6%, 5%, 4.5%, to invest in a REAL business (like a CAT, or a BofA that isn’t a shitpile of toxic waste)?
Yes. I believe so.
We will weather this thing. Bailout or no bailout. We are not doomed.
I’m going to bed now. You can have the last word.
This POS company is the worst of the bunch, it needs to go broke and be plowed under.
Let the people who made the risky loans and the people who pressured them to do so take the hit. It’s unfair, unjus, and anti-free market to subsidize their corruption and stupidity with your and my taxes.
These politicians don’t actually care about solving this problem. They’re just salivting at somethign else they can nationalize. Power for them.
But it always winds up taking money out of the pockets of the American taxpayers — you and me and everyone else, for the benefit of a few. I’m surprised that anyone who calls himself a conservative would support that. I’m with Keyes, Gingrich, George Will, and 70 percent of the American people. this bill is a disaster, and it sets a horrible precedent.
If companies fail, then let them fail. (I don’t think any actually would.) That’s the dynamic of the market. it’s when the goernment interferes with the works that we get these kinds of problems.
A company destroyed by one of Obama's chief advisors, Jim Johnson.
Because the power-hungy politicians, in their greedy zeal to grab more power, couldn't let a company get sold privately if they had the chance to naitoonalize it.
How's that for 3 weeks on the Job? Sorry, but this make my blood boil - MHO.
Any company that has a twelve inch pipe pumping money in the presidents bank account is not well run. Let them pound sand.
I see the REpublibots have shown up.
It’s time to bail on the bailout.
yes the country as a whole is rich, we have $56 trillion in assets if the values on things remain around where they are. But in violent deflations, they don't.
In violent deflations, asset values of everything you can name can drop 90% or more, peak to trough.
In the early 30s, people lost houses they had mortgages on when the mortgages were 30% loan to value, at 1929 values.
You really do not want to watch what violent deflation does.
I personally think Bank of American won't fail, but only because I think your preferred policies will not be followed. If they were, ruthlessly and ideologically, then I think it is a coin toss whether it would fail. I think in that event, the Merrill and Countrywide acquisitions might be enough to sink them, alomg with panic and a "no bailouts for anyone" policy, and the bloodthirsty kill the rich populism I see across the board, 24-7.
But I know if those policies were followed, entirely needless destruction on a collosal scale would result. With damage to the average person on mainstreet, to the treasury, to all operating businesses outside of finance, to sound finance and to unsound finance. That the damage would be greatest to the last, is exceedingly slim compensation. Personally, I think $20 trillion in market losses and half our financial corporations smashed is lesson enough. Personally, I think debt growth stopping dead, and the rate of mortgage issuance hitting $80 billion as an annual rate, is quite sufficient. I don't think we need to teach 'em all another lesson 10 times that size. I think they heard it the first $19 trillion times.
But I don't think ideologues or reckless class warfare haters of the rich ever hear anything, and that is why I don't want any of them anywhere near positions of power or responsibility.
You can always tell the bankrupt losers of arguments by their reach for the wild ad hominum smear, with nothing whatever to back it up.
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.