Subsidizing StupidityFor the last couple of days, people have been asking me my opinion of the coming $750 billion dollar bailout of so many of our failing financial firms. The latest to ask was my own State Representative, Frank Niceley, who brought it up when I called him last night with a constituent concern. Needless to say, Niceley and and myself are of one mind-the bailout is one of the worst economic policies of our lifetime.
I doubt that I need to explain why I believe it to be wrong that the federal government should reward fiscal irresponsibility by giving a pass to all of those who engage in it. Some liberals and Democrats are already running their mouths saying that this will merely be a corporate sort of relief. However, the bailout will likely filter down to consumers in some very direct ways:
But differences remain on two big items: possible limits on executive compensation at firms taking advantage of the bailout; and changes to bankruptcy law that would let judges adjust the terms of mortgages. And late Monday, negotiations were slowed -- but not derailed -- as Treasury was hit with congressional Republican concerns about the direction of talks, and as Democratic leaders heard a range of concerns from rank-and-file members of their party.
The President will leave office by giving the nation a Democratic economic plan should this proposal pass. The plan is so over-reaching that it makes the New Deal look like a Boy Scout service project. What all of this boils down to is that no one, not Congress, not corporate executives, not banks or mortgage companies, not credit card companies, and not consumers, wants to take responsibility for the reckless financial practices that every one of these economic powers have been engaging in for many years. Rather than pay the consequences of bad behavior, people now want the government to come to their rescue so that in 20-30 years we will be doing this yet again.
There are a few people on Capitol Hill and elsewhere who see what a catastrophe this plan could ultimately bring about:
Sen. Richard C. Shelby, an Alabama Republican and the ranking Republican on the Senate Banking Committee, reiterated his distaste for the plan, calling it "neither workable nor comprehensive, despite its enormous price tag." Sen. Shelby, whose influential position makes his opposition a potential stumbling block, called for Congress to look for alternative solutions.
"I think it's awful," said Allen Meltzer, a former Reagan economic adviser now teaching at Carnegie Mellon University. "It puts private interests ahead of the public interest." Mr. Meltzer pointed to past occasions when, he said, doomsayers warned of financial panic, the government resisted the urge to bail out the markets, and nothing terrible ensued. Among those he cited was President Richard Nixon's decision not to rescue the commercial-paper market in the aftermath of the collapse of the Penn Central railroad.
This seems to be the minority view, and the Democrats are jumping all over this bailout like kids in a candy store:
House Financial Services Chairman Barney Frank (D., Mass.), who is leading negotiations in Congress, said Democratic leaders don't intend to stand in the way of the package. "We do agree you should move quickly," he said. "We understand that bad market choices have put us in a situation where something has to happen." Democratic leaders are aiming for votes in the House and Senate late this week.
Our taxes will now almost certainly go through the roof, because allowing the government to enter the financial system in such a massive way doesn't come without a huge price tag. Those Democrats intent on using the bailout as political fodder are being disingenuous, since a Democratic administration would almost certainly have made the same proposal ten times worse.
Our tax money should not be used to subsidize people's collective stupidity-and yes, that is precisely what we will be doing.