Topic: Finance, Banking & Monetary Policy

Treasury Can Only Spend $50 Billion Per Month

So why give them $700 billion?

Representative Spencer Bachus (R-AL) is before the House Rules Committee arguing that the Treasury Department can’t even use all of the $700 billion that the bailout legislation would authorize. Congress can allow Treasury some of the money, take a look later at a couple of months of the program, and see how well it’s being used.

His colleagues are beating him up for it, but it makes simple sense. The right answer is not to bail out Wall Street at all - and for heaven’s sake do away with the government-sponsored enterprises that got us here - but a compromiser would let the program run for a few months, with the new Congress in January taking a look at how it’s working.

Laissez-Faire and Corporatism

I’ve just read Steven Horwitz’s excellent “Open Letter to My Friends on the Left,” on the subject of the credit crisis. I highly recommend it, whether you’re on the left or not:

In the last week or two, I have heard frequently from you that the current financial mess has been caused by the failures of free markets and deregulation. I have heard from you that the lust after profits, any profits, that is central to free markets is at the core of our problems. And I have heard from you that only significant government intervention into financial markets can cure these problems, perhaps once and for all. I ask of you for the next few minutes to, in the words of Oliver Cromwell, consider that you may be mistaken. Consider that both the diagnosis and the cure might be equally mistaken.

Consider instead that the problems of this mess were caused by the very kinds of government regulation that you now propose. Consider instead that effects of the profit motive that you decry depend upon the incentives that institutions, regulations, and policies create, which in this case led profit-seekers to do great damage. Consider instead that the regulations that may have been the cause were supported by, as they have often been throughout US history, the very firms being regulated, mostly because they worked to said firms’ benefit, even as they screwed the rest of us. Consider all of this as you ask for more of the same in the name of fixing the problem. And finally, consider why you would ever imagine that those with wealth and power wouldn’t rig a new regulatory process in their favor.

The seemingly arcane difference between laissez-faire and corporatism is one of the most important in today’s public policy debates. Laissez-faire means the equality of all before the law, with the state neither helping nor hindering any market actor. Corporatism means offering special favors to those who’ve already succeeded. (Just for starters: “Too big to fail” is corporatism.)

If only this distinction were more clearly understood by lawmakers, journalists, and the general public. Too often all of these groups just use the vague word “capitalism,” which seems mostly intended to split the difference – or to obscure it. But laissez-faire and corporatism are directly opposed to one another, and if more people on the left understood this, they might be far more sympathetic to free markets. Even, perhaps, while keeping a healthy mistrust of corporations.

George Will Is on a Roll

Another great column from George Will today, on the House’s “vote against rashness.” With a conservative’s sense of history, he traces some of the policy choices that brought us to today’s crisis:

Suppose that in 1979 the government had not engineered the first bailout of Chrysler (it, Ford and GM are about to get $25 billion in subsidized loans). Might there have been a more sober approach to risk throughout corporate America?

Suppose there had never been implicit government backing of Fannie Mae and Freddie Mac. Better yet, suppose those two had never existed – there was homeownership before them, just not at a level that the government thought proper. Absent Fannie and Freddie – absent government manipulation of the housing market – would there have developed the excessive diversion of capital into the housing stock?

But really, if you haven’t been reading George Will this year–on the problems with both Obama and McCain, on the automobile bailout, on local government fiscal crises–go here. And to read what he says about his new book, go here (pdf)

Cynical Senate Vote

The Senate is scheduled to vote tonight on the Wall Street bailout package, which now includes a provision to relieve taxpayers of a scheduled $60 billion or so jump in annual alternative minimum tax payments.

House Majority Leader Steny Hoyer noted, “there’s no doubt in my mind that the Senate added this [AMT provision] because they thought that’s the only way they could get it passed.”

Thus, despite the outpouring of public opposition to the bailout, Congress is determined to rig the vote and grab the people’s money anyway it can. The Senate is essentially saying to the public: “We won’t impose a $60 billion tax hike on you next year if you let us bailout Wall Street. And don’t worry about the $700 billion, we’ll just tack that on to the $5 trillion in public debt that your children and grandchildren already owe.”

There are too many insider experts and economists driving this debate, and too little recognition inside the Beltway about the basic injustice of a bailout. As many callers to the talk shows are saying, the government wants to take $700 billion from average hard-working families who followed the rules and give it to people who made bad, irresponsible, and even disastrous decisions.

Many economists are saying: “Well, I’m usually against intervention and subsides, but this case is special.” But that’s what they always say. The hunt for supposed “market failures” is a full-time pursuit for many modern economists, and it’s mainly nonsense. Back in January the administration and many top-flight economists created a similar crisis atmosophere, inducing Congress to pass the ridiculous “stimulus” bill. What did that achieve other that putting us $150 billion further into debt?

Nihilists!

Dieter: “Ve are Nihilists, Lebowski. Ve believe in nothing! Nothing!”

–Joel and Ethan Coen, “The Big Lebowski”

“And let us recognize above all the 228 who voted no — the authors of this revolt of the nihilists. They showed the world how much they detest their own leaders and the collected expertise of the Treasury and Fed.”

–David Brooks, “The Revolt of the Nihilists,” September 29, 2008

That’s David Brooks tearing his hair out yesterday over the failure of the bailout bill.  It’s interesting that Brooks characterizes people who resist the idea of privatized profits and socialized loss as “nihilists.”  If you’re not willing to let Brooks’ “new establishment” play with up to $700 billion in tax dollars, if you don’t offer up your wallet the moment an expert cries “crisis!”–why then, you must believe in nothing! Nothing at all!

Interesting, but maybe not all that surprising.  Brooks is, after all, the architect of National Greatness Conservatism, the philosophy that says “American purpose can only find its voice in Washington.”  Inside Washington: purpose, meaning, fulfillment–glory.  Outside Washington: a vast and pitiless void.  “All within the state, nothing outside the state, nothing against the state,” as a prominent theorist of national greatness once put it.