Waiting for Some Sane Voices

Watching the current financial crisis online, while waiting for the October surprise of the bombing of Iran, all the while wondering are things really this frail, I came across this post at “the corner” of National Review.



For the life of me I cannot understand the Corner these days.  I keep wondering where the call to “Stand up and Yell Stop” that Mr. Buckley spoke of has gone.  I keep reading about the irresponsibility of House Republicans, but how is it irresponsible to stand up and say that you think a bill is bad for America?  It is the height of irresponsibility for the Bush administration – and all those doing their bidding – to be screaming “crisis” and scaring the hell out of the American people, holding a shotgun to Congress’ head and then saying “there are NO other options.”


We all get it.  It’s bad out there.  We’re way over-leveraged.  Consumer debt is out of this world.  Credit is tight at best.  And banks are insolvent.  We need to take action.  But darn it, we should take the right kind of action.


Are the following not real concerns about this bill?

 1)      The bill has NOT been significantly improved – it is essentially THE SAME as Paulson’s original bailout

·        The alleged “Congressional action” requirement for the last $350BB in authority is false.  It is, effectively, an “opt-out” by Congress, which if not exercised within 15 days of Presidential certification, expires.

·        The alleged avoidance of ACORN, “cramdown,” and unions is misleading – they were never in the original Paulson plan – only suggested by Democrats.  Republicans simply did their job to keep those out.

·        Other “improvements” are of questionable value – and pale in comparison to the harm done by the bill.

 2)      The Paulson-Democrat Wall Street Bailout will not work

·        Banks are highly insolvent and the capital hole to be filled would not be filled by this plan – and any attempts to do so under this plan would drive up the cost of the “toxic asset” purchases (see next point)

·        The supposed “profit” or “minimal cost to the taxpayer” is predicated on buying toxic assets low and selling them high – yet that inherently conflicts with the price point necessary to inject sufficient capital

·        But even when prices are bid up (because Treasury is incentivized to do so to make it work), there is no guarantee banks will use the money to then lend if they are still insolvent and facing a likely recession

·        This bill does nothing to deal with the over $60 trillion in largely unregulated Credit Default Swaps that are wreaking havoc with the financial system

·        The plan is operationally questionable – with little clarity about dealing with the pitfalls of price-fixing, how a “reverse auction” won’t be easily manipulated to allow prices to get bid up, and other problems 

3)      The Paulson-Democrat Wall Street Bailout will arguably make things WORSE, not better

·        The plan does nothing to address the immediate commercial banking concerns – withdrawals by citizens increasingly panicked by an administration and Congress apparently hell bent on stoking the flames

·        The plan does, however, funnel money primarily to the old-line, traditional investment banks – undermining the capital position of less leveraged, commercial banks so critical to Main Street America.

·        The plan has no restrictions on buying up assets from foreign banks – banks who aren’t active lenders in U.S. markets directly and whose leverage is far greater (40x) than even American traditional investment banks (25x), whose leverage is greater than American commercial banks (10-15x).


·        Moreover, many of these foreign banks are currently being or are soon to be nationalized.  Therefore, the US government would be buying toxic assets at above market prices to support foreign governments. 


·        We may blow the best shot the federal government has to use taxpayer money wisely to “work out” of the current financial situation – getting it wrong will CREATE problems and HARM confidence, because fundamentally underpinning this situation is the assumption that the government can prevent a meltdown.  If the plan fails, this opportunity may well disappear. 


·        $700 Billion is a LOT of money, and if this doesn’t work (and even if it does, to a degree), we cannot borrow forever – as we continue piling up national debt  – and risk the collapse of the dollar


 4)      The Paulson-Democrat Wall Street Bailout forsakes free market principles and creates moral hazard

·        This plan would have government socialize losses – and breaks the tie between risk and reward/failure.  Certain companies need to get wiped out – and doing so will be BETTER for remaining investments.

·        When government steps in preemptively and starts arbitrarily buying up assets, the expectation is that it will do so again and again  

5)      The Paulson-Democrat Wall Street Bailout is arguably unconstitutional

·        Possibly struck down for improper, sweeping delegation of power to the Treasury Secretary


·        The oversight mechanisms cause significant separation of powers concerns – creating a “power sharing” mechanism that runs afoul of the Founders vision of not merging executive and legislative decisions.


I am not suggesting that this is easy.  But the furor on the Corner for members who dare to suggest this plan is not a good one is weak and itself irresponsible, when no one is suggesting doing nothing.


And as for alternatives:


         how about reinforcing FDIC to give people confidence in their savings?  Maybe more support for money markets? 

         How about cutting corporate taxes or cap gains taxes? 

         How about buying up (or financing the purchase of) the AAA securities that currently are having trouble moving but are not “toxic,” in order to increase liquidity and help with possible insolvency for healthier institutions rather than the old line investment banks? 

         How about doing something about the silliness of the $62 Trillion Credit Default Swap market (e.g. the margin requirements, etc…)? 

         How about immediately changing mark-to-market rules?

         And – heaven forbid – how about belt-tightening in Washington?  Don’t hold your breath – but imagine what a signal that would send – a freeze in discretionary spending, a moratorium on earmarks and a real plan to educate America about entitlements and talk about the need to get our fiscal house in order.


It is very concerning how much the Washington Republican / Conservative establishment is jumping in line behind this bill because, we are told, we “must do something.”  Since when is that EVER a good thing in Washington? 



There is a part of me that looks forward to a test of our inner strength. A dose of Spartan discipline might be just what the doctor ordered for the sick American spirit. It is possible that the nation goes on a energy development, domestic production strategy that revitalizes something in us that all of these years of easy prosperity have engendered in us.


I don’t try to say my life has not been shaped by the easy credit, the rising house values and the attitude that I can have it all now. Myself, along with everyone else might just rise to the occasion of tightening our belts and looking out for each other instead of depending upon the government to solve all of our problems.


That anti-christ spirit that wants total control all of our lives is watching present developments closely.


About hansston

Pastor a church in Sparta.
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