Category Archives: Bailouts

“It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations…”
Thursday, October 9, 2008

I’m an ardent capitalist who understands the occasional usefulness of traditional fiscal and monetary policy to accomplish marginal changes to the economy in an effort to smooth out naturally occurring business cycles. I emphatically do not, however, believe in the nationalization of our country’s financial institutions. It is not the business of government to own, even on a limited and fleeting basis, our financial or other private sector corporations, nor should it attempt to affect the behavior of our financial and other markets through the establishment and support of quasi-public institutions such as Fannie Mae and Freddie Mac.

Forget President Bush, the first zero President in my lifetime. He understands and does nothing. Our current Administration and the Federal Reserve, under the leadership of Secretary Paulson and Chairman Bernanke, have told us that our economy in very deep trouble of a nature and to an extent that requires extraordinary measures to avoid catastrophic consequences from which only they can save us.

For the second time in this Administration’s history – the first being the authorization of the use of military force in Iraq due, in large part, to the threat of non-existent weapons of mass destruction – our Administration has convinced Congress to authorize the use of massive amounts of money to solve a major problem which they have blown way out of proportion. Without question, their rhetoric and sense of panic has contributed to the problem, to a loss in consumer and entrepreneurial confidence, and has allowed us to be played for everything we’re worth, and then some, to the advantage of certain corporate interests. (Unbelievable, but I’m beginning to sound like some nutball talk radio host – and all I really wanted to do is write stuff.)

Their solution – from the same people who allowed and even encouraged the problem – has been hurriedly and ill-conceived. It is not at all clear that other, less expensive solutions might not have been more effective at facilitating the natural recovery process in which the economy was already engaged, and would have been more helpful to reduce the extent and duration of the negative impacts of any downturn on our families and businesses.

Careful, wise regulation of financial institutions is prudent and essential. No doubt about it. No, what I find disturbing is the way in which the Administration has chosen to involve itself in the finances of specific companies such as AIG, for example, Morgan Stanley and Goldman Sachs which they have now allowed to become banks, and others. Paulson and Bernanke are selectively reaching into the economy and using public money we don’t have to affect the fortunes of specific firms. With what impact on their competitors? With what consequences for their markets? Not that our economy doesn’t need help from time to time, but from a government that understands the difference between assistance and control. This is not fiscal policy which focuses on employment and income (personal and corporate) on a broad spectrum basis. This isn’t monetary policy that uses changes in the interest rates to affect the cost and supply of money on a broad spectrum basis. This is something very different.

It is, at the risk of sounding overly dramatic, nothing less insidious than a form of the nationalization of our economy – and I don’t think partisan politics has anything to do with it. Republicans, as a party, certainly don’t believe in this kind of government. Quite to the contrary, Senator McCain is a champion of less government participation in our economy. If anything, it’s more consistent with Democratic thinking given the endless stream of promises Senator Obama has made, the realization of which will involve much more government spending and involvement in our lives. This is a Paulson/Bernanke thing. – with President Bush having lunch on the sidelines.

In today’s headlines, and within the authority granted by the bailout program legislation Congress has just passed, Secretary Paulson is considering taking an ownership interest in certain of our major banks. This is not a good thing. True, it’s something which has happened in Europe, but I don’t live in Europe. This is my country, and I like our brand of capitalism.

I want Paulson and Bernanke out of office. Paulson goes in January with the change in Administration. Bernanke should be replaced as quickly as possible – by Greenspan II, if we can find one. And I want a new Administration which is, from the top down, committed to assisting the economy by using traditional fiscal and monetary policies in a way which allows a well-regulated, but otherwise free market economy to accomplish its own recovery.