September 28, 2008

Bailout Rant No. 2: Ten Reasons to Oppose the Bailout

Some talking points on the bailout:
  1. Moral hazard. The prattle from the economic punditocracy was that bailing out the poor slobs that borrowed on teaser terms would create a "moral hazard," that is, reward the grasshoppers, not the ants. All this has been forgotten. When the grasshoppers are powerful enough, forget about moral hazard.
  2. True prices.  If the gummint buys this paper at the market price, it's no help to the paper holders--they could sell the paper on the market. If the gummint buys the paper above market price, we're nationalizing the losses. The market provides feedback, we are instead politicizing the determination of values. We are entering a permanent economic fantasy world.
  3. Precedent.  If we start rescuing failed enterprises, where does it end?  With a nation of Amtraks?
  4. Fairness. In the Jewish and Christian moral traditions, we are supposed to care for the widow and the orphan. Apparently we are caring first for the rich, and let the devil take the hindmost.
  5. Universal Subsidy. The underlying fallacy of the welfare state is that everybody cannot subsidize everybody, while the gummint takes its cut. Someone must be productive. The Chinese will not be productivity surrogates for us forever.
  6. Short-stopping Recession.  It's political poison to acknowledge, but recessions have their uses. They tend to eliminate badly managed businesses and illusory valuations of goods. If we try to head off a recession whose origin is founded on poor management and misallocation of resources, we are preventing the system from self-correcting. 
  7. Our Children. We're borrowing the money for this exercise. Guess who's paying? 
  8. Opportunity Cost. The more money we spend on this exercise, the less is available for everyone's pet projects. When it comes to welfare state programs, it's just as well. When it comes to fixing our crumbling infrastructure, think again.
  9. Shattered Hegemonic Dreams. Some may not regret it, but spending this much money on the economic crisis will make the notion of American hegemony even more impractical. Bail out a bank, scratch a weapons program.
  10. Constitutional Destruction. We are building an ever-more centralized, unaccountable gummint. Remember "gummint isn't the solution, it's the problem." Once we has a constitution. Fuggedabadit. The man from Goldman, Sachs, with minimal oversight, is guarding the henhouse.
In short, my gentle friends, this is larceny and folly on a Herculean scale. 

Another bailout haiku:
Give away the store
Investment bankers care less
If your children starve.

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