Sunday, October 12, 2008

Repeal the Bailout Taxpayer Robbery

By Howard Hyde

12 October 2008

If the bailout package had failed to pass and the stock market had subsequently fallen by 20%, that would be taken by many as proof that government inaction was the cause of the crash and that immediate intervention was needed. Will anyone take the fact of the crash following the bill as proof that the government’s action was the cause of the crisis, and that it should be backed out? Don’t hold your breath.

In one stomp, the federal government expands its footprint on the economy by 25%, and the aggregate value of privately owned assets falls by 20%.

Is that a coincidence? We were told by Congress, by the president, by both presidential candidates and by the Wall Street Journal that, while ‘regrettable’, this is all necessary in order to forestall total collapse (I’m sure their wasn’t a dry eye in the Capitol as congressmen and senators emoted their ‘regret’ over grabbing an additional $1.3 billion apiece). But what we got was precisely… collapse, in exact proportion to the government’s action.

If the bailout bill was necessary and proper on its own merits, why didn’t it pass when it was just a few pages long? It didn’t pass until it was several hundred pages long and larded up with unrelated pork.

This is not noble leadership in a time of crisis; this is cynical business as usual in the worst sense of the term at an increasingly corrupt institution.

The bill didn’t pass on its own merits the first time around because the constituents of all stripes were opposed, and told their representatives so. Is the dominant divide in this country to be found between left and right, between the Democratic party and the Republican party, or is it really between the people and the power elites? This episode suggests the latter.

“But Howard, the market needs liquidity in order to continue to function.” I’m sure the Weimar German monetary authority said something like that in 1924, right before the price of an egg shot to 1 trillion marks. What do you mean, liquidity? You mean, flowing dollars? The people aren’t smart enough to make their dollars flow in the beautiful, graceful fluidity required by the economy, therefore Congress and Hank Paulson to the rescue?

Citizens, beware the euphemism ‘liquidity’!

When a politician uses that word, it’s code for 1) wholesale counterfeiting on the part of the government, i.e. inflation, robbing you of the purchasing power of your dollars, 2) contrived credit expansion via the Fed forcing interest rates below market, resulting in an artificial drunken boom which MUST be followed eventually by a bust due to the bad debts incurred, or 3) an excuse to take away your dollars outright in order to liquify them according to the federal government’s preferences, not yours. Markets function perfectly when they write down assets that are discovered to be worthless (or merely worth less than previously valued), in order to direct capital to its best use.

But no! We can’t allow the market to price assets according to revealed reality! We’re told that the government has to step in here, because greedy lenders and speculators abused the market. This is less than half the truth. Lenders were alternately threatened, cajoled and bribed by the government into making loans that they otherwise would not have made, if they had to assume all of the risks themselves. Speculators only did their jobs, which is to keep all the others honest.

As for greed, this term is meaningless as an objective, analytical tool of economics.

If greed is wanting more than one has, then everyone is greedy. Businessmen are greedy, speculators are greedy, homeowners are greedy, the Pope is greedy, Mother Teresa is greedy, yo’ mama is greedy. But greed is impotent without a gun. Greed doesn’t become crime (and by extension abuse and/or destroy markets) until someone uses illegitimate force or deception to make others bend to his/her will. Who has such power? A street thug with a Glock has a little. A mafioso with a ‘family’ may have a few million. A corrupt businessman may even have a few billion to throw around. But Congress commands hundreds of billions of dollars and assumes a nearly limitless right to tell you and me what to do with ours. If they can vote it, they can do it. If you don’t do what Congress wants, sooner or later you are going to be facing men with guns.

The federal government caused the crisis. Until it is reformed, it won’t be the source of a solution.

What’s needed in the market is not liquidity so much as rationality.

Who can forecast, plan and invest with confidence in a market where outcomes are not determined by fundamentals, by intrinsic value, by projected cash flows, by price-earnings ratios, by voluntary cooperation among millions of customers, suppliers and competitors, but by the whims and commands of Congress? Is the price of a share of stock of GM a legitimate political issue, to be determined by committees and lobbyists?

In a market, millions of individuals cooperate and compete to help each other, take real risks, identify real needs and opportunities, create wealth, enjoy successes from good decisions and suffer losses due to bad ones. In a casino, by contrast, the risks are contrived, the rewards are mostly chance, the house always wins, no net wealth is created and the games may be rigged.

The more the government commands the market, the more the market becomes a corrupt casino.

This crisis will not be solved by Congress, by the President (of either party), by the Fed or by the Treasury department (or the World Bank, the International Monetary fund, London bankers or the Chinese Communist Party). The only people qualified to solve this are you and me, the businessmen, the clergy, the computer programmers, the corporate managers, the hot-dog stand owners, the investors, the musicians, and the figure skaters of America; in short, the taxpayers, including the greedy, much-maligned ones who earn $250,000+ per year (a drop in the bucket compared to what your average Congressman commands).

A bad idea is still a bad idea, even (or especially) when it’s a done deal.

Repeal the bailout bill. It’s just a taxpayer robbery.


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