Notes On the Bailout

A better term for it is the “pileon,” as the proposal threatens to pile onto taxpayers massive amounts of other people’s bad debt and foolish decisions.

The Denver Post quotes from the “three-page outline” of the bailout proposal: “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.”

Don’t look only at the evils of the bailout itself; look at the precedents it establishes that, in the wrong hands, could lead to an out-and-out fascist state down the line.

The Associated Press at least quotes a couple of opposing voices:

Added Rep. Darrell Issa, R-Calif., “I am emphatically against it.” …

Sen. Richard C. Shelby of Alabama, the panel’s senior Republican, was even more blunt. “I have long opposed government bailouts for individuals and corporate America alike,” he said. Seated a few feet away from Paulson and Bernanke, he added, “We have been given no credible assurances that this plan will work. We could very well send $700 billion, or a trillion, and not resolve the crisis.”

Sen. Jim Bunning, R-Ky., added, “This massive bailout is not a solution. It is financial socialism and it’s un-American.”

What does the American Public think? On September 17, Rasmussen reported, “Only seven percent (7%) of voters think the federal government should use taxpayer funds to keep a large financial institution solvent. Sixty-five percent (65%) say let the company file for bankruptcy.” On September 22, Rasmussen reported, “Most Americans are closely following news reports on the Bush Administration’s federal bailout plan for the country’s troubled economy, but just 28% support what has been proposed so far. Over one-third of voters (37%) oppose the $700-billion plan, and nearly as many (35%) are undecided…” In other words, Americans have a good gut reaction, but their opposition is being worn down by the constant propaganda in favor of this massive, forced redistribution of wealth.

Finally, Thomas Sowell hedges on the matter of bailouts, but he has some good things to say about the economic problems:

Why then is there such a mess in the financial markets? Much of that mess is due to the very people we are now turning to for solutions– members of Congress.

Past Congresses created the hybrid financial institutions known as Fannie Mae and Freddie Mac, private institutions with government backing and political influence. About half of the mortgages in this country are backed by these two institutions.

Such institutions– exempt from laws that apply to other financial institutions and backed by the implicit promise of government support with the taxpayers’ money– are an open invitation to risky behavior. When these risks blew up in their faces, Fannie Mae and Freddie Mac were taken over by the government, costing the taxpayers billions of dollars.

For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers.

Back in 2002, the Wall Street Journal said: “The time for the political system to focus on Fannie and Fred isn’t when we have a housing crisis; by then it will be too late.” The hybrid public-and-private nature of these financial giants amounts to “privatizing profit and socializing risk,” since taxpayers get stuck with the tab when high-risk finances don’t work out.

Similar concerns were expressed in 2003 by N. Gregory Mankiw, then Chairman of the Council of Economic Advisers to President Bush. But liberal Democratic Congressman Barney Frank criticized Professor Mankiw, citing “concern for housing” as his reason for supporting Fannie Mae. Barney Frank said that fears about the riskiness of Fannie Mae were “overblown.”

As I’ve noted, Frank is the same fellow who recently advocated the massive bailouts and blamed the problem, not on his own foolish political interventions in the economy, but on “a lack of regulation.”