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Tuesday, September 23, 2008

The Bailout

Here we are after much disparaging of the government regarding the financial malfeasance that has occurred over the last 35 years. Given the attempts of the present administration to rush through an ill-conceived bailout of the financial industry, I find it fascinating that Germany would be the defender of free markets and capitalism but here we have it.

It's not a call for assistance; it's a scream for help. US Treasury Secretary Henry Paulson is asking other countries to help buy up bad US debt. The US government is putting up $700 billion in taxpayer money in the hopes that the measure might restore stability in the financial system. Some countries are planning to help. But the German government has answered this call quickly and clearly: no.

Accordingly, IWH's Dietrich suggests that the US government require all banks to issue stocks and that they be required to back up the issuance with a set amount of capital. Under these circumstances, Dietrich believes that investors would buy shares of the banks that they consider healthy and that the market would make it crystal clear which banks these were. And the institutions that are having a rough time because they can't find investors will go broke. "That step would send the right signal to the market," Dietrich says, adding that those who were performing the worst wouldn't be rewarded in such as situation -- as they are being now.

Maybe the idea of a trillion dollar bailout isn't such a good idea. America is truly the frog in a pan of boiling water and soon will be too cooked to jump out and save itself. "Hank" Paulson says "The crisis is embarrassing". Personally, I think "Hank" Paulson is embarrassing. He and the Chairman of the Federal Reserve, Ben Bernanke didn't cause the problem rather ex-chairman, Alan Greenspan is probably responsible for most of it. However, they perpetuated it and are ultimately accountable for the mess we are faced with and now we find them at the trough of the government largess urgently imploring the people to bail out the very institutions they have mismanaged.

I'm reminded of the movie, Trading Places when Dan Aykroyd as Louis Winthorpe III approaches his friends at the country club asking for some financial help and Todd says something to the effect of "frankly, Winthorpe, I find this to be in extremely bad taste.".

Well, I have to say that we find the efforts of the buffoons in charge of the financial markets of the U.S. to be equally in "bad taste".

The honorable Ron Paul, Texas congressman is against the bailout:

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.

It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.

The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.

I strongly urge our readers to take a moment and visit this website where you can express your opinion on this issue.