I am dismayed with Washington D.C. to the point of not even wanting to vote next month. Why? The so-called bailout plan that Congress passed last week, a plan which is nothing more than a standard issue pork laden oinker of a bill that will do little to improve the financial markets that could not have been accomplished by the Fed, Treasury, and Congress without a massive taxpayer funded porkfest.
Both presidential candidates had a chance to make a stand for change, instead they shrugged their shoulders and said, in effect, “yeah, this bill isn’t perfect but we have to do it” and signed on. What they signed on for is not change but rather business as usual Washington politics where individual Senators and Representatives load up a controversial bill with their pet projects and screw the citizens they are supposed to represent.
You be the judge, is the recision of a tax on a single company that makes wooden arrows for children important, or a tax break for makers for auto racing tracks, or television and movie producers, or a tax credit for plug in hybrids that manufacturers won’t have any problem selling without a tax credit important to financial recovery? This is a bad bill and reflects yet more government interference for problems they themselves helped create. There were ample mechanisms for dealing with this crisis, none of which required a trillion dollar spending bill, like pumping the system with money (happening anyways), raising the FDIC insurance limit (which the FDIC could have done on it’s own without Congress), and capital forbearance.
There are three ways for policymakers to address this problem. The most risky and least effective approach is the Paulson plan, as modified by Congress. The idea to assemble a pool of funds with which to bid up the prices of mortgage securities. The U.S. Treasury would take hundreds of billions of dollars of public funds in order to join the table at Liar’s Poker.
Another approach, which would work more quickly, would be to suspend the rules that require banks to mark securities to market values on their balance sheets. The problem with this approach is that it puts a blindfold over the eyes of regulators. The agencies that oversee banks lose the ability to recognize when a bank is in trouble and needs to be shut down.
A third approach is called capital forbearance. Regulatory agencies would issue new capital rules that would permit banks to make good loans without having the required capital. There is still some risk to taxpayers, because banks would have a lesser capital cushion. However, this is by far less risky than having the government play Liar’s Poker with mortgage securities.
Why do the bailout plans focus on the riskiest, least effective approach for avoiding a credit crunch? Because Wall Street firms like Goldman Sachs get huge fees and trading profits from Liar’s Poker, and they make very large campaign contributions to key Congressmen and Senators.
A Rasmussen poll came out over the weekend and had some startling results. Fewer than 1 in 2 people surveyed think that selecting people at random from the phone book would result in a worse Congress, 1 in 3 actually think that people selected at random would make a BETTER Congress and 1 in 3 simply are not sure. This same survey found that only 1 in 4 people think members of Congress actually understand the bills they are voting on and only 23% have “even a little confidence” that Congress will be able to do something constructive to help.
Despite just 11% of people surveyed by Rasmussen thinking Congress is doing an acceptable job, 90% of the members will be re-elected because of gerrymandering. Obama and McCain both had an equal opportunity to use this crisis as an opportunity to put the rubber to the pavement for the “change you can believe in” message and both failed. They bellied up to the bar like everyone else and said “yeah this think is a porker but that’s what it takes to get things done”. What makes me or you believe that a McCain or Obama administration would be any more credible at changing the way government works to improve the real crisis in Washington, a crisis in confidence that these people actually care more about the country than they do themselves?
In the last 3 decades we have been primary witness to the consequences of government driving policies that end up having disastrous consequences. The first is energy policy and the second is home ownership, both of which were the result of protracted and deliberate patterns of obstacles and obfuscation by both parties over successive administrations.