Bash the Bailout: Government is Not the Answer
The bailout bill that passed through Congress today seeks to solve the financial mess by massively increasing government involvement in private finance. But more Government cannot be the answer to a government-created problem. The fact is that short-sighted government policies distorted the market in the first place. Bankers were certainly to blame for responding to these signals from government in the hope of a quick buck, but at its base, much of the problem was caused by government.
These are the top twelve articles, stories and papers that we think demonstrate this fact.
1. Fannie Mae and Freddie Mac are at the heart of the crisis, having helped to create an artificial mortgage boom. Fred Smith warned Congress about this in 2000, and was ridiculed for it. Read what happened here.
2. Steven Malanga outlines the “long road to slack lending standards” and just how government encouraged this, at RealClearMarkets.
3. Thomas Sowell explains how economic-populist politicians used their power to help create the problem.
4. The Securities and Exchange Commission requires firms to value their assets in a way that has vastly accelerated the liquidity problem. John Berlau explains why here.
5. A detailed examination of why mark-to-market accounting distorts the market from Peter Wallison of the American Enterprise Institute.
6. Back in 2000, City Journal warned that the Community Reinvestment Act (CRA), which encourages unrealistic aspirations to home ownership, was doomed to failure.
7. Earlier this year, Michelle Minton looked at how the CRA had indeed helped contribute to the subprime crisis.
8. Dan Mitchell argues that government created the problem, and more government will make things worse.
9. Even the International Monetary Fund recognizes that government “bailouts” don’t just merely postpone the inevitable in a banking crisis, they make things worse. This is a long paper, but see p. 4 in particular.
10. One of the oldest forms of government intervention in the financial markets has been deposit insurance. Yet globally it destabilizes capitalism, impedes innovation and makes a bad regulatory regime worse. British economist Andrew Lilico explains how.
11. Harvard economist Jeffrey Miron puts it bluntly: “The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place.”
12. Government has been becoming more intrusive when it comes to lending over the years. John Berlau looks at how they want to fingerprint anyone originating a home loan.
The bailout bill is now law, but it does little or nothing to solve the problems government created. As long as they persist, the financial markets will be at serious risk. In the end, we may need to bailout the bailout. Fixing these government-imposed problems must be a priority now if we want to have a strong, free economy.
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Life’s two certainties (being sold out by the Swiss may be one of them)
As yesterday’s New York Times reports. Lost in the universal focus on the credit crisis, we have seen a somewhat troubling change taking place in Switzerland’s longtime bank secrecy laws.
Switzerland’s tax authorities, under pressure from a growing United States investigation into the Swiss bank giant UBS, are expected to hand over confidential data on wealthy American clients of UBS to the Justice Department, two people briefed on the matter said Tuesday.
The move would represent a significant shift in Switzerland’s banking secrecy laws, whose tradition dates to the Middle Ages.
Swiss neutrality (which is irritable to some) and stability has enabled its banking sector to become a source of prosperity for the nation. Reasonable exceptions to their secrecy laws for actual criminal activity should be allowed, but forcing banks to share private information on its clients merely for ’suspicion’ of tax evasion (something often disputable due to folks scrounging through the complicated tax code to reduce liability) seems quite dangerous. Especially since Swiss tax law has a different view of tax evasion than the U.S.
Swiss law makes disclosure of client data or names a crime unless the Swiss authorities think that the client has committed a serious crime, like money laundering or tax fraud. Unlike in the United States, Switzerland does not consider tax evasion to be a crime, though both countries have largely similar definitions of tax fraud.
And the Swiss are capitulating! In direct contradiction to their own legal view of tax evasion. Even though some may argue that this is moot because the U.S. does not consider a financial transaction as something beholden to privacy rights, the Swiss do–and besides, the U.S. view is wrong. A person’s financial records should be considered as sacred as their medical records.
Every citizen should maintain a healthy distrust of its government, after all, we have seen federal bureaucracies used to abuse the rights of citizens in many ways by many different regimes. If the government has the power to search through someone’s private financial dealings in another country solely on suspicion, where does our right to privacy stand? In terms of what constitutes law-breaking in one country as opposed to another, can the U.S. impose its view of a crime on another sovereign nation? Here, the U.S. Justice Department wants to see foreign bank records of thousands for the suspicion of committing an act NOT considered a crime in the country in which those records are held (I know, it happens).
Under pressure in recent months from the Justice Department, Switzerland’s justice ministry, taxing authority and banking regulator have adopted the view that some American clients of UBS may have committed tax fraud.
Note what this says, “Under pressure…[from the DOJ],” Swiss officials “have adopted the view…” that sees, contrary to their own law, these folks as criminals–because the DOJ ’suspects’ that they are.
So where does this lead? If the DOJ can pressure a foreign authority into ignoring its own legal views, where does this leave the U.S. on other issues, namely environmental and other laws that seek to usurp national sovereignty (there are a few)? What’s worse, under U.S. tax law, a U.S. citizen can still be taxed on income he earns outside of its borders and cannot renounce his citizenship solely to avoid taxes (how they’d find out who knows)–which is in my opinion just wrong–leaving you with the IRS and DOJ chasing down every red cent of your money they feel entitled to. Add to that some of the invasive banking provisions of the PATRIOT Act, and you have further intrusion into people’s lives and business by a government that knows no boundary. This is not a “pro-rich” or pro-tax cheat view, but a pro-civil rights and sovereignty view.
-GH
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Bailout fails — Move on to Mark-to-Market Reform
Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don’t stick the rest of us with their losses.
It’s not hyperbole to say the Republican and Democratic backbenchers who defied both parties’ leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that America is much less likely to turn into France, Venezuela, or the old Soviet Union, as this bailout/nationalization package would have set us on the road to becoming.
Several great speeches on the Right and Left were given. Democrats Brad Sherman of California and Earl Blumenauer of Oregon gave powerful speeches against corporate giveaways. And conservative leaders of the Republican Study Committee — such as Jeb Hensarling, Jeff Flake, Mike Pence, and of course Ron Paul — spoke about how government intervention was largely the cause of this predicament, but the bailout would doom arguments for the free market form here on out. The idea of the government making this kind of outlay to high-flying risk takers just didn’t jibe with members, and certainly not with the American people.
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