Posted on 09/23/2008 1:52:33 PM PDT by jazusamo
Estimates of how much money a government program will cost are notoriously unreliable. Estimates of the cost of the current bailout in the financial markets run into the hundreds of billions of dollars, and some say it may reach or exceed a trillion.
Many people have trouble even forming some notion of what such numbers as billion and trillion mean. One way to get some idea of the magnitude of a trillion is to ask: How long ago was a trillion seconds?
A trillion seconds ago, no one on this planet could read and write. Neither the Roman Empire nor the ancient Chinese dynasties had yet come into existence. None of the founders of the world's great religions today had yet been born.
That's what a trillion means. Put a dollar sign in front of it and that's what the current bailout may cost.
Will that money be spent wisely? It is theoretically possible. But don't bet the rent money on it or you could end up among the homeless.
Whenever there is a lot of the taxpayers' money around, politicians are going to find ways to spend it that will increase their chances of getting re-elected by giving goodies to voters.
The longer it takes Congress to pass the bailout bill, the more of those goodies are going to find their way into the legislation. Speed is important, not just to protect the financial markets but to protect the taxpayers from having more of their hard-earned money squandered by politicians.
Regardless of what Barack Obama or John McCain may say they are going to do as president, after a trillion dollars has been taken off the top there is going to be a lot less left in the federal treasury for them to do anything with.
Already Senator Christopher Dodd is talking about extending the bailout from the financial firms to homeowners facing mortgage foreclosures— as if the point of all this is to play Santa Claus.
The huge federal debts that we already have are the ghosts of Christmas past.
Financial institutions are not being bailed out as a favor to them or their stockholders. In fact, stockholders have come out worse off after some bailouts.
The real point is to avoid a major contraction of credit that could cause major downturns in output and employment, ruining millions of people, far beyond the financial institutions involved. If it was just a question of the financial institutions themselves, they could be left to sink or swim. But it is not.
We do not need a replay of the Great Depression of the 1930s, when the failure of thousands of banks meant a drastic reduction of credit— and therefore a drastic reduction of the demand needed to keep production going and millions of people employed.
But bailing out people who made ill-advised mortgages makes no more sense that bailing out people who lost their life savings in Las Vegas casinos. It makes political sense only to people like Senator Dodd, who are among the reasons for the financial mess in the first place.
People usually stop making ill-advised decisions when they are forced to face the consequences of those decisions, not when politicians come to their rescue and make the taxpayers pay for decisions that the taxpayers had nothing to do with.
The Wall Street Journal, which has for years been sounding the alarm about the riskiness of Fannie Mae and Freddie Mac, recently cited Senator Christopher Dodd along with Senator Charles Schumer and Congressman Barney Frank among those on Capitol Hill who have been "shilling" for these financial institutions, downplaying the risks and opposing attempts to restrict their free-wheeling role in the mortgage market.
As recently as July of this year, Senator Dodd declared Fannie Mae and Freddie "fundamentally strong" and said there is no need for "panicking" about them. But now that the chickens have come home to roost, Senator Dodd wants to be sure to get some goodies from the rescue legislation to pass out to people likely to vote for him.
Don't make any bets on how this situation is going to turn out— except that we can predict that politicians will blame the "greed" of other people. You can bet the rent money on that.
Only a guess but I believe he’ll write more on this in next weeks columns re what has or hasn’t happened by then.
I try and try but he's still there.
For the life of me, I cannot understand why McCain (or someone from his campaign) doesn't lay out how complicit Dodd, Schumer, Frank and the rest of the Dems were in this fiasco AND how many times the Reps. tried to put some breaks on Fannie and Freddie but were overruled by the Dems. They should be screaming it from the roof tops!
Thanks, AuntB. A thought provoking post.
". . . there have always been those who wish to enlarge the powers of the General Government. There is but one safe rule . . . confine (it) within the sphere of its appropriate duties. It has no power to raise a revenue or impose taxes except for the purposes enumerated in the Constitution. . . . Every attempt to exercise power beyond these limits should be promptly and firmly opposed."
He rightly castigates our political class but fails to clearly make the case that this bailout is (1)necessary and (2) sufficient to avoid a depression.
I'm halfway through Sowell's 2nd book on economics for us lay people. He describes economies as seeking a level in the same way as water does. Our politicians can either set up a dam that will surely only flood us all later, let loose a flood that will wipe most of us away right now, or let loose a trickle that may keep us all relatively content. With most politicians only thinking about the election a couple months from now, I'm not too optimistic.
All I know is I wish most of our representatives had read his books!
Consider that if the person who’s managing this trillion-dollar bailout can sneak 1% of it into the campaign of his preferred politician, that would dwarf the combined campaign funds of Obama and McCain in this election. Does any reasonable person think that couldn’t happen?
It's probably necessary to inject funds and liquidity at some places in the market to prevent it from locking up. I am skeptical that even 10% of the funds used for a bail out will actually go where they are needed.
No kidding! Lessee... Dr. Sowell is in CAlifornia. Budgets seldom get passed on time in CAlifornia. The reason budgets don't get passed in CAlifornia on time is.. oh yeah! Pork and "pothole fillers" wrangling from the Dems. Dr. Sowell has had an inside front row seat to the CA budget stall-n-add disasters fer years.
Now credit is never absolutely necessary. A well run corporation could have lots of cash on hand that they use to purchase all the inputs they need to make their products. When they sell their products, they replenish their cash supplies with the profits and repeat the process again.
Unfortunately it seems that for a business to be considered "well run" it has to be using every bit of its assets at full throttle. So having lots of cash on hand is considered bad because it is not being used to make the maximum possible return, and it could open the company up to a hostile takeover by a company willing to take the cash and do something else with it.
A company that exists to build and sell autos is no longer allowed to keep the cash on hand it needs to purchase steel, pay salaries, etc. It must take that money and gamble on hedge funds, while it gets the money it needs through borrowing ... hopefully at a lower rate than its return on its investments.
Our whole economy is now a JIT (Just-In-Time) economy that is one boat load of consumables away from a disaster. Now even the money needed to fund corporations is JIT.
This is the real problem with our economy that has been pointed up by this mess: the people at the top no longer care whether they are working for automobile manufacturers or airlines or restaurant chains. All they care is that there are some faceless people doing something over there that generates cash that they can speculate with.
And the shareholders (who are increasingly daytraders) no longer care either. So long as all the best bets are made and won by the CEOs running the Ponzi Schemes they bought into earliest.
“But bailing out people who made ill-advised mortgages makes no more sense that bailing out people who lost their life savings in Las Vegas casinos. It makes political sense only to people like Senator Dodd, who are among the reasons for the financial mess in the first place.
People usually stop making ill-advised decisions when they are forced to face the consequences of those decisions, not when politicians come to their rescue and make the taxpayers pay for decisions that the taxpayers had nothing to do with.”
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Bears repeating....Thomas Sowell, voice of reason and true patriot, in a day and age when they’re such a rare breed.
They weren't "complicit" - they were shaking down the banking industry while giving the banking industry enough rope to hang themselves ( in the short run the banks were making money hand over fist - in the long run, it was the ruin you see around you today). This disaster wasn't an accident - perverse incentives caused it.
You're right, they should be screaming from the roof tops. What can I say?
Great post. Thanks.
http://www.youtube.com/profile_videos?p=r&user=pinegrove33&page=2
http://www.youtube.com/profile_videos?p=r&user=pinegrove33&page=3
I particularly enjoy his Media Madness and Feminist Fantasies.
Bookmarked, and many thanks. Gonna be a fun evening!
nah, in part I the attitude wasnt that a bailout was right, just that it IS gonna happen...
He also laid the blame pretty squarely on those who now wanna man the lifeboats...
“The real point is to avoid a major contraction of credit that could cause major downturns in output and employment, ruining millions of people, far beyond the financial institutions involved. If it was just a question of the financial institutions themselves, they could be left to sink or swim. But it is not.
We do not need a replay of the Great Depression of the 1930s, when the failure of thousands of banks meant a drastic reduction of credit— and therefore a drastic reduction of the demand needed to keep production going and millions of people employed.”
It's THIS intervention I don't like.
At one point in my life, I was an internal auditor, and I still have an auditor's perspective on proposed government programs.
That perspective is nicely in sync with my conservative philosophy, and both lead me to evaluate using this question:
"If the most corrupt and incompetent people I've ever seen in government were in charge of this program, what safeguards are in place to minimize the damage they could do??"
The Paulson plan falls way short using that test.
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