Rising from the ashes: Why bailouts ultimately hurt

It was just a couple of years ago. The housing market wasn’t doing so hot, and these things called derivatives were supposedly making things very difficult for the banks. President Bush stood behind a podium and addressed the American people. He told us that the government needed to buy these derivatives because it would help the banks, and then when the value went up, the government could sell them. It sounded fine.

What we got was something else entirely as various banks began to fail. Then auto companies were barely limping. There was panic in Washington, and they said we simply had to do something. But did we?

Economic matters are always tricky, and there’s always another point of view that will disagree with whatever you think. However, the biggest mistake we made was believing in the idea of “to big to fail”.

Take a hypothetical bank called Bank of Tom (BoT). BoT starts out as a small community bank, but grows and grows. Thanks to government assistance, it becomes one of the largest banks in the United States. It buys up smaller competitors with loans from the government, as well as lobbies Congress for laws that are favorable to it while hurting smaller competitors. It’s massive, employing thousands and controlling a huge part of the market.

Then the economy goes to crap and BoT is in serious trouble. If it’s going to stay, it needs help from the government. This is where we found ourselves just a couple of years ago. We already know what can happen if BoT gets the help. The economy stagnates for at least a couple of years and the company continues doing business as it always had, confident that they’re “to big to fail”. But what if we had taken the other road? What if BoT had been allowed to fail?

SC Congressman Gresham Barrett Booed at Greenville Tea Party

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Despite the assertions of most MSM outlets, the Tax Day Tea Parties were not Republican love-fests.  Most who attended are just as angry at the ridiculous expanse of the federal government under the Bush administration as we are at Obama’s clear intent to continue what W started.  This video is a clear example.

However, sources indicate that this may be just the beginning.  Are you ready to attend meetings and rallies for your local RINO legislator and let him or her know how you feel about their voting record?  Sounds like it’s time to turn up the heat.

Dissent is Not Unhealthy, It’s Patriotic

Dissent is “unhealthy”:

A top adviser to President Barack Obama takes a dim view of last week’s anti-tax “tea parties,” promoted by organizers in the spirit of the Boston Tea Party.

“The thing that bewilders me is this president just cut taxes for 95 percent of the American people. So I think the tea bags should be directed elsewhere because he certainly understands the burden that people face,” David Axelrod said Sunday.

The rallies coincided with the deadline to file income taxes, and gave people a chance also to voice frustrations about government spending and corporate bailouts.
Axelrod was asked on CBS’ “Face the Nation” for his opinion on what the show’s host described as “this spreading and very public disaffection with not only the government, but especially the Obama administration.”

Government Intervention Run Amuck: Bank Intervention

My list of examples of the unintended consequences of government intervention in the marketplace gets longer and longer. This time, I’m going to point out the latest irony: Investment banking’s profitable last quarter.

This would be wonderful news if it were genuine, but looking a little deeper reveals the truth. First, in one of Barron’s feature articles by Andrew Bary, we learn about a little-discussed fact: Goldman Sachs has only been able to issue low-cost debt due to the backing of the FDIC through a program called the TLGP, or Temporary Liquidity Guarantee Program.

Maybe Germans Did Learn Something From The Weimar Republic

When President Obama arrives in London this week he will meet with the leader of Germany, a nation where his election has brought newfound goodwill towards America; but will the goodwill be enough to force the hands of Germany to conform to Washington’s desires for additional stimulus and bailouts? If the latest media reports, which point towards an Administration attempting to dial down expectations, are any indication, then the answer is most likely a soft no.

The NYT is reporting that little ground is expected to be made in regards to additional German stimulus, with Chancellor Angela Merkel expected to cite fiscal discipline as a reason for German non-cooperation with President Obama’s Administration on the issue-

Dr. Paul Talks About Gaza and the Banking Industry Bailout

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Dr. Paul discusses further developments with the disbursement of the bailout funds and the resolution supporting Israel over Palestine.

Bailing Out the Auto Industry: A Perspective

Thursday evening I posted on my Facebook profile the speech that Congressman Ron Paul gave on the House floor, opposing the auto industry bailout (the so-called “bridge loan”), along with the following comment:

“This speech on the auto bailout speaks for itself. Congressman Paul really puts it all into perspective. Were that there were more in Congress like him.”

For the Love of Keynes

As Henry Paulson recently stated, an economic crisis of this magnitude only comes around once or twice a century. I’m not exactly sure what the basis for such an argument might be other than looking at a sample size of… about one century. Whether there is merit in this assumption or not, we certainly are facing an economic crisis. In times like these, our government leaders look to policy experts and lessons of history - and possibly listen to them more than usual. This doesn’t mean they stop looking to lobbyists and the next election.

Meet the Parents

Meet my new parents: the U.S. Government. The parallels are astonishing when you think about it. (Forgive my generalities… they are for illustration!)

1. Parents want their kids to be the best: Just like proud moms and dads show up at little league games and fight with other parents, help (or take over) fundraising activities so their kids will “win” by raising the most money, or argue with teachers about grades… we see the U.S. Government assert its authority all over the world - both economically and militarily - so that we can be the “greatest nation on earth”.

Corporate Welfare: Can Republicans Kick the Habit?

I periodically try to explain that there’s a big difference between being pro-market and pro-business.

Simply stated, policy makers shouldn’t try to penalize businesses with taxes, mandates, and regulations.

But neither should politicians seek to subsidize businesses. That’s why I’m against bailouts, subsidies, and other distortions that provide special favors for politically connected companies.

I have nothing against companies earning money, to be sure, but I want them to earn their profits in the marketplace rather than lining their pockets by using the coercive power of government to rig the rules of the game.

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