[Guest post by JRM]
The $700 billion bailout of the banking industry had naysayers complaining that the government wouldn’t act consistently, that abuses would occur, and that it wouldn’t actually help the economy.
Let’s take that step-by-step.
Initially, money from the bailout was supposed to be used to buy bad mortgages under the theory that the government knew better than all of the other investors. The Treasury Department changed its mind Wednesday, deciding that, yeah, that wasn’t a good idea. This was after it got approval to spend the $700 billion pretty much as it pleased.
Now, the money will help to make the balance sheets better. Tomorrow is a new day, and who knows what fun the government will find to use the money on?
And abuses? Let us speak of a plucky little company called the Hartford Financial Services Group.
The poor folks at Hartford wanted a few billion dollars from the government. Unfortunately, since they had no banking arm, they weren’t eligible for the bailout. They were sad.
So, they went to find a bank to purchase, and the Federal Trust Bank was available for $10 million. (Ten million, with an “m.”) They purchased it, so now they’ll be eligible for the Capital Purchase Program, and will apply for $3.4 billion (with a “b”) in government funds.
I am not making this up.
Other companies have simply bypassed the requirements by being called Bank Holding Companies; the Treasury granted American Express’ request to be so designated because, you know, they need the money.
Meanwhile, the $300 billion expended so far has done roughly nothing. No one knows what the treasury’s next move is, and people are afraid of continued economic downturns. The slowdown in credit stays right where it was.
Other industries are lining up; the auto industry is next, followed by, presumably, the blog industry. I am hopeful that Patterico sells senior debt to the government for $6 billion, so I don’t have to continue to survive on the paltry $800 per post I’m currently paid.
There’s no indication of what a successful plan will do, no indication that the Treasury has fixed plans, and no indication that anyone should expect consistency from the use of the money. We have no targets which are supposed to be met, and Secretary Paulson’s bald statements that the bailout is working seem uncompelling.
People who bought smaller houses and have 10-year-old cars will continue to pay for their neighbors in the nicer area nearby. That’s the effect of the bailout so far.
I’m not saying the government should do nothing. But this continued throw-money-at-it and find out what works reminds me too much of a fifteen-minute discussion between the pilot of an airliner and ground control some years ago.
The plane’s ability to move vertically had been severely impaired by a mechanical breakdown, so they tried various things that didn’t work. The people on the ground were experts in the field, but once the first few things didn’t work, they had the pilot try something else as an experiment.
“OK,” was the last intelligible word said.
I’d rather do small things that are likely to work rather than socialize the financial sector, which has a serious downside. The total 2008 federal budget originally submitted was $2.9 trillion, and the bailout is now expected to exceed a trillion dollars.
We’re talking about huge numbers here, and I have no confidence that the current plan will result in anything but the eventual governmental takeover of massive portions of the financial industry.
It’s time to regroup, and stop once the first $350 billion is spent. Barack Obama said he’d stop programs that weren’t working; here’s one.