Why the Credit Crisis Is the Government's Fault

Over at Reason TV American Enterprise Institute Fellow Peter Wallison lays out the genesis of our current financial crisis. It's about 25 minutes long but a very methodical presentation of the facts.

Some like to blame Wall Street greed for the meltdown. I'm not saying that there isn't blame to be assessed there too, but I can't help but observe that Wall Street's reaction is somewhat like the HAL 9000 computer in 2001: A Space Odyssey. It became irrational because it was instructed to do something fundamentally at odds with its programming. Banks were made to lend to borrowers whom their normal underwritng standards said they should not or be fined for doing so. They were placed in a no-win situation and the ways they tried to reconcile the two competing goals of prudent lending and complying with the Community Redeveloment Act (CRA) caused them to do increasingly irrational things. It's just one more example of how political interference in free markets, well intentioned or not, produces undesireable results.

Update: History of the HAL 9000. HAL was constructed for "the accurate processing of information without distortion or concealment". However, he was asked to conceal information from the Discovery crew and the only way he could reconcile the contradictory instruction was to kill the crew, therefore leaving no one to conceal anything from.

Mark Steyn Takes on Bailouts.....

... in his unerringly to the point but humorous style.

"General Motors now has a market valuation about a third of Bed, Bath & Beyond, and no one says your Swash 700 Elongated Biscuit Toilet Seat Bidet is too big to fail. GM has a market capitalization of about $2.4 billion. For purposes of comparison, Toyota's
market cap is $100 billion and change (the change being bigger than the whole of GM). General Motors, like the other two geezers of the Old Three, is a vast retirement home with a small money-losing auto subsidiary. The UAW is AARP in an Edsel: It has three times as many retirees and widows as "workers" (I use the term loosely). GM has 96,000 employees but provides health benefits to a million people."

President Bush seems to think that it would be a mistake to let the Big 3 file for Chapter 11. His decision to go ahead and bail them out anyway, despite it failing in the Congress, will probably prove to be a bigger one and will not actually bail them out at all. Go read it all of course.

Hey, Big 3, If You Let Government Get Into Bed With You, You'll Never Get It Out Again.

I'm holding back a little in the title of this post. I'm addressing it to the Big 3 automakers, now seeking alms from the taxpayer. What I mean to say is that if you let the government in your bed, you will get screwed (still a little more polite than the word I'm actually thinking of). Todd Zywycki has an op-ed in today's Wall Street Journal in which he get it exactly right about why the automakers should prefer Chapter 11 not government "help".

Those Washington politicians who repeat the mantra that "bankruptcy is not an option" probably do so because they want to use free taxpayer money to bribe Detroit into manufacturing the green cars favored by Nancy Pelosi and Harry Reid, rather than those cars American consumers want to buy. A Chapter 11 filing would remove these politicians' leverage, [my emphasis] thus explaining their desperation to avoid a bankruptcy.

I agree with this, except that I don't think it's going to be a bribe. It's going to be naked coercion. Once you get Harry and Nancy dictating the kinds of cars they'll build, Maxine Waters dictating which dealers they may or may not close, etc., it's only a matter of time before the Big 3 really do collapse entirely. The Big 3, at least GM and Chrysler, should file now, before they completely lose control of their destinies. Chapter 11 gives the companies the opportunity to come up with a reorganization plan first and if management is smart (not demonstrated thus far) they'll take this opportunity before it's too late.

The Republicans Can't Just Play the Game, They Need to Change the Game

I just received a phone call from the Republican National Committee, asking me for a donation of $300 so "we don't just hand the Whitehouse keys over to the Democrats." It seems to me the Republican Party has already done just that. It has proven itself to be just as corruptible and every bit as spend-thrift as the Democrats and I'm not giving them a dime until I am convinced that they've done the soul-searching necessary to re-learn what it is Republicans are supposed to be about and what the Republican rank and file want from them and then they've got to start acting like Republicans again.

We want you to get Government out of our lives wherever possible. The economic mess we are in now, whether it is the housing crisis, the credit crisis, the auto industry crisis, the health insurance crisis or the energy crisis, every single one of these has its roots in government (political) interference in free markets. Every regulation, every little tweak to the tax code designed to bring about some perceived social good, distorts the markets and causes people and businesses alike to make decisions that make no sense otherwise.

The problem I see with the way the Republicans operate is that they are trying to play a game with rules that someone else has set but are not obeying themselves. The Republicans are fighting according to Marquis of Queensbury rules while the Democrats are fighting with brass knuckles and knives. This has to stop. The Republicans need to stop letting the other side frame the debate and start standing up for what it knows to be right, unapologetically and ignoring the howls of feigned outrage from the other side. Stop backing down every time someone calls you names. Recognize that you're being played and don't engage with that tactic.

The Republicans can't win under the current rules of the game because the other side is controlling the rules. Therefore, it is necessary to change the game. For example, stop quibbling about the tax code and what is just the right marginal income tax rate and talking about who is "paying their fair share". To do that is to buy into the corrosive class warfare/wealth envy rhetoric the other side likes to use to keep the voters divided against one another. The income tax is basically immoral and should be scrapped altoghether. It is also large part of why we have such a hard time competing globally. Our corporate tax burden is the highest or second highest in the world. Quibbling about the details loses sight of the basic fact that the income tax is wrong and Republicans shouldn't be afraid to say so. Yes, I'm talking about enacting the FairTax. Taxing consumption rather than income is the only truly fair way to raise tax revenues and the boost it would give to our economy is definitely something we need right now and it furthers the aim of getting government out of our lives.

A Wake-Up Call on Job Losses

The American Thinker has an article up, penned by a small business owner who is about to permanently shutter his business and "go John Galt", and he's not shy about telling us why.

"Like many business owners, we are no longer willing to take all of the financial and legal risks and put up with all of the aggravation of owning and running a business. Not with the prospects of even higher taxes, more regulation, more litigation and more emboldened bureaucrats on the horizon. Like others we know, we are getting out while the getting is, well, tolerable. Many who aren't getting out are scaling back.......

Most of the kind of people who start and run businesses are by definition trying to opt out of depending on anyone else -- be it a large corporation or government -- for their welfare. We take on tremendous risks and responsibilities. We do so expecting a better than average return. Since we require nothing from government, most of us deeply resent and resist being pestered by government.

For nearly 30 years, I have been one of these business people. It was an amazing journey and literally involved blood, sweat and tears. But now I am done. This election screams that we are going to see a deterioration of the risk-reward equation and the ability to be left alone. Apparently, any appreciation of our crucial place in the economy is lost on over 50% of the voters as well as those they elected."

Read the whole thing.
(via Instapundit)

Vodkapundit Big 3 Bailout Ad

This ad poster says all that needs to be said. The best bailout package the big 3 automakers could have is a trip through Chapter 11. Tell your Senators and Congressional rep NO!