And Now a $700 Billion Bailout
The Bush Administration’s proposal to ram through without any deliberation a $700 billion Treasury Department, blank-check bailout of Wall Street firms is astounding and unprecedented and would increase the federal debt ceiling to an incredible $11.3 trillion. In response, Democrats have unhesitatingly joined in as is reported by the Los Angeles Times:
Democratic leaders have pledged to approve a bill but say it must also include tangible help for ordinary Americans in the form of an economic stimulus package.
Staff members from Treasury and the House Financial Services and Senate banking committees immediately began meeting on Capitol Hill and were expected to work through the weekend. Congressional leaders are hoping to recess at the end of the week for the fall elections, after approving the bailout and a budget measure to keep the government running.
. . . .
House speaker, Nancy Pelosi of California, said in a statement. “Democrats will work with the administration to ensure that our response to events in the financial markets is swift, but we must insulate Main Street from Wall Street and keep people in their homes.”
. . . .
Divided across the population, it would amount to more than $2,000 for every man, woman and child in the United States.
Now we learn that the bailout could be used for any financial institution worldwide that does business in the United States. Treasury Secretary Henry Paulson states that bailing out foreign banks is “a distinction without a difference to the American people.”
If a financial institution has business operations in the United States, hires people in the United States, if they are clogged with illiquid assets, they have the same impact on the American people as any other institution. . . . That’s a distinction without a difference to the American people. The key here is protecting the system. . . . We have a global financial system, and we are talking very aggressively with other countries around the world and encouraging them to do similar things, and I believe a number of them will.
Paulson then makes the ultimate claim of Keynesian-economics absurdity for this blatant grab for corporate welfare:
[R]emember, this is about protecting the American people and protecting the taxpayers.
In contrast, Independent Institute Senior Fellow Robert Higgs has noted the following:
If that is so, then please pause while I eat my proverbial hat. It seems perfectly obvious that the measures undertaken in the past few days—Fannie/Freddie bailout and takeover, AIG, Fed and other central banks showering credit willy-nilly, and the larceny in progress to pay the banks for their rotten paper—add up to the biggest single rip-off in the history of the world. And people just sit staring dumbly while the politicians do this deed, evidently accepting that without these robberies the whole world would fly apart. It’s crazy.
Dr. Higgs has decisively shown that it is the Federal Reserve and other government agencies, not free markets, that are responsible for the financial crisis (see here, here and here), and the corporatist measures being pursued now by Benjamin Bernanke and Henry Paulson are exactly what will only make the situation worse. In the process, certain financial firms will be given preferential treatment as the bailout rewards some at the expense of others, the entire mortgage industry is being socialized, and the general public will pay through higher prices, debt and taxes. The following books by Dr. Higgs are essential:
Depression, War, and Cold War, by Robert Higgs
Crisis and Leviathan, by Robert Higgs
And Senior Fellow William Shughart has shown the folly of government takeover and bailouts in this government-created crisis (see here, here, here, and here). Indeed, in his book (with Jim Couch), The Political Economy of the New Deal, Dr. Shughart shows how the interventionist policies of both Herbert Hoover and Franklin Roosevelt (i.e., FDR’s New Deal) were directly responsible for the enormity and duration of the Great Depression. Adopting such measures now is disgraceful and utterly foolish.
The solution instead is to end the bi-partisan, federal-pork fiasco by cutting spending, regulation and taxes and ending the Federal Reserve’s ability to create credit and debt bubbles. Expanding the current bubble further through bailouts will only prolong and deepen the problem.