about the latest (bad) bailout

eeyore · Sep 25, 2008

Thomas Sowell is one of the best economic minds that this Country processes (imo)

A Political "Solution" by <acronym title="Thomas Sowell">Thomas Sowell</acronym>

Who was it who said, "crack-brained meddling by the authorities" can "aggravate an existing crisis"? Ronald Reagan? Milton Friedman? Adam Smith? Not even close. It was Karl Marx. Unlike most leftists today, Marx studied economics.
Is the current financial crisis going to lead to crack-brained meddling or to some rational actions? Predicting what politicians are going to do is risky business. We will have to wait and see.
Saints are no more common on Capitol Hill than they are on Wall Street. We can only hope that the political "solution" does not turn out to be worse than the problem.
There are times when government intervention can make things better. But that is no guarantee that it won't make things worse. As they say, "the devil is in the details"-- and we don't know the details yet.
Probably most members of Congress don't know the details yet-- and many may still not know the details when the time comes for them to vote on this bailout.
Taking an optimistic view, this biggest bailout of all time may stop the problems in financial markets from spreading into the general economy-- which is currently nothing like the disaster area that the media portray it to be.
Ninety percent of the people on this planet would exchange their economic situation for ours in a minute. The media love hype, and have been dying to use the word "recession" all year but nothing has happened that meets the definition of a recession.
The American economy is growing, not declining. Our unemployment rate is up to 6 percent but there are countries that would be delighted to get their unemployment rate down to 6 percent. Our inflation rate is up a little but many countries would love to get their inflation rate down to where ours is.
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."
Maxine Waters and other members of the Congressional Black Caucus have also been among the liberal Democrats defending Fannie Mae. Just last year, Senator Charles Schumer advocated legislation to allow Fannie Mae and Freddie Mac to increase their already huge role in the mortgage market. Republican Congressman Mike Oxley has also defended these hybrid financial giants.
Both Fannie Mae and Freddie Mac have been generous in their contributions to politicians' political campaigns, so it is perhaps not surprising that politicians have been generous to them.
This is certainly part of "the mess in Washington" that Barack Obama talks about. But don't expect him to clean it up. Franklin Raines, who made mega-millions for himself while mismanaging Fannie Mae into a financial disaster, is one of Obama's advisers.
Click to expand...

http://townhall.com/columnists/ThomasSowell/2008/09/23/a_political_solution

A Political "Solution": Part II by <acronym title="Thomas Sowell">Thomas Sowell</acronym>
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.
Click to expand...

http://townhall.com/columnists/ThomasSowell/2008/09/24/a_political_solution_part_ii

homeshow · Sep 25, 2008

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.

this will happen without government help. no i don't like it. but i need my job and this paper is not worthless. it is mortgages to real homes you can buy and live in. not a T-bill can't live in a T-bill. a $200,000 house gets reduced to $150,000 the actual mortgage note costs is close to $90,000 so even at $150,000 this is a good long term investment. the problem is that the $90,000 is tied up. as in not available for investment or to use for loans (credit). there is a great chance that the US government will make lots of moolah long term. of course the democrats will spend it as soon as it hits the books.

Log in or Sign up

about the latest (bad) bailout

eeyore Monkey+++

homeshow Monkey++

Log in or Sign up

about the latest (bad) bailout

eeyore Monkey+++

homeshow Monkey++

Useful Searches