Sunday, September 28, 2008

Stop the bailout bank robbery

By Howard Hyde

28 September 2008

Government intervention in the economy, meddling and fiddling, fiddling and meddling, is what got us into this mess in the first place. More government intervention, artificial price supports and an unprecedented $700 billion taxpayer bailout won’t get us out.

Think it through, people. You want this problem solved, so you relinquish $700 billion more of your money … to the US Congress? Do the math people! That’s $1.3 billion per congressperson and senator, on top of the $2.5 trillion per year that we already give them. Politicians rail against the greedy rich, those making a whopping $250 thousand, and then demand that THEY (the congresistas) be put in charge of 24,000 times that --- apiece!

And for what? Mortgage delinquency rates of 6.4 percent? Unemployment at 6.1 percent? A dozen bank failures per year, the biggest of which has already been resolved in the market? Stock prices lower than what some would prefer? Housing prices falling to… reasonable levels? We’ve had much worse in the past, and the rest of the world, even much of Europe, lives with much worse all the time.

Never mind that Congress is a den of scoundrels. We could replace them tomorrow with 535 of the most wise, honorable and non-partisan sages in the nation, and they STILL wouldn’t be qualified or morally warranted to take on this task. They don’t have the information, the incentives or constraints to be able to judge the right thing to do for each of the hundreds of millions of the rest of us.

$700 billion dollars of new taxpayer liabiltiy is a radical interventionist/socialist solution to the problem which won’t work. What’s needed is a radical laissez-faire capitalist solution that actually will.

To the extent that free-market capitalism is still permitted to function in this county, it is already working. Bank of America bought Countrywide and Merrill Lynch. JP Morgan Chase bought Washington Mutual. The players who didn’t let themselves be swept away by the currents of moral hazard unleashed by the Fed and Congress are now in the relatively strong position to take charge of the assets which were mismanaged by those who did.

And so it goes. Joseph Shumpeter called it ‘creative destruction’. John Maynard Keyenes referred to ‘animal spirits’, which, as long as they are given free rein, will never be in short supply.

The various players in our economic and political system each have a role to play in the solution. Here are my recommendations:

The Fed: Stop trying to force the interest rate where YOU want it, and start targeting it to where it would be if YOU didn’t exist. Stop fighting the will of a hundred million savers and investors who have their own market information (better than yours), time preferences and demands for rates of return. Stop counterfeiting dollars, debauching our currency. Peg the dollar to gold at a nice round number like $1000 an ounce (you don’t have to tell anybody, just do it) and take the credit for the ensuing monetary strength and stability.

Congress: Give yourselves a raise, say, $250,000 (tax free), and then get out of the way. Reduce the federal government footprint on the economy so that the forces capable of realizing the recovery can do their jobs. Cut marginal income taxes, abolish the death tax and the double-whammy capital gains tax. The best income tax cut strategy would be simply to remove all bracket-based rates except for the bottom one; everyone pays the same low flat rate from above the the poverty line to Barack Obama, Cindy McCain and beyond. The Laffer Curve effect will ensure that this results in MORE revenue, not less, to the treasury. Embrace your inner John F. Kennedy.

While you’re at it, lift all the unreasonable restrictions and bans on resource development, including offshore drilling. We can EASILY push the price of a barrel of oil below $50 while creating thousands of new jobs and business opportunities, which will contribute handily to enabling us to weather the monetary storm (of course, cheap energy is anathema to the radical environmental movement and they will oppose it tooth and nail in the fraudulent name of ‘saving the planet’).

The president (and presidential candidates): Thank you for a sincere effort. Please sign the bills lifting the federal boot off of our throats.

Taxpayers earning $250,000 or more. Keep your money; spend it, save it and invest it as you see fit. You have proven by your hard work, productivity and judgement that you are the most capable of making the right decisions, judging real asset values, and creating jobs. YOU are the saviors in this crisis, not Congress, not the president (regardless of party).

Speculators: Keep speculating. Keep the politicians and corrupt CEOs honest. If you’re right, you’ve done a public service and received your reward. If you miss, you’ll have less resources with which to influence the market in the future, and that’s as it should be.

But what about regulation?

The legitimate purpose of regulation is to prevent and punish murder, assault, robbery, theft, rape, persecution, conspiracy and fraud. So by all means, if any players have acted in criminally fraudulent ways, then hold them to account and institute regulation which minimizes the risk of unscrupulous players getting away with it in the future.

But let us never lose sight of the root fraud of all of this: It came from Congress, chartering and conferring indefensible privileges upon its favored companies Fan and Fred which predictably morphed into corrupt behemoths threatening the stability of the entire economy with their implicit taxpayer guarantee, as the Wall Street Journal has been warning for at least six years (http://online.wsj.com/article/SB121599777668249845.html?mod=article-outset-box); and it came from the Fed, inflating the money supply and expanding credit, a recipe for disaster that Ludwig von Mises and his disciples have been warning about for nearly a hundred years (http://mises.org/story/3128).

But what about affordable housing? It’s time to laugh that canard out of Barney Frank’s office and out of Washington. Housing was attempted to be made more ‘affordable’ by the classic political means: forcing the rate of interest below that which would have prevailed in a free market (and easing other requirements --- can you spell Subprime lending? Liar Loan? Countrywide?). But how in the world was ‘affordable housing’ served by the housing bubble --- prices rising year after year at 2, 3, 5 times the rate of inflation? Shouldn’t there be rejoicing in the streets now that the bubble has burst and prices are more ‘affordable’?

Some people, myself included, enjoyed the inflated home equity while it lasted. But that sentiment doesn’t qualify as a moral principle upon which to base public policy. It certainly doesn’t justify a massive expansion of federal government power.

Legalize captialism; the only solution.


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