Saturday, September 27, 2008

Massive Banking Bailout Will Be the Genesis of Big Government 3.0

Whether we call this $700 billion plan to preserve the financial system a bailout or a rescue is completely semantic. When the dust settles, we will have a plan that has the Treasury buying billions worth of risky assets with the prospect of reselling them at a profit once the market recovers and the assets regain their value.

Let's revisit that last point, because it will be at the center of what I want you to think about.

The Treasury will be buying assets and reselling them for a profit.

The fact that we, as real conservatives, are resigned to bite down and take this plan is an indication of just exactly the threat posed by the crisis. When the government enters into the financial sector as a buyer, it signals the beginning phases of socialism. In the battle between socialism and capitalism, capitalism is being painted as the flawed system and it is up to champions of the free market to make sure that it is protected from the obvious open door this change in philosophy that this represents.

If the plan is successful, the Treasury will use taxpayer dollars to buy assets low and sell them high. (Sounds a little bit like the kind of actions speculators and market shakers took to exacerbate this crisis.) We have to hope that Congress will be having the SEC remove or modify regulations governing how values of these assets are set once they are bought and sold for lower-than-market prices, or else this bailout could turn out to be a one-two punch on the banks. I mean, I'm sure they've thought of that. Right?

Even if the rescue plan manages to account for all of the booby-traps, set by regulators as though they were guarding Inca gold from Indiana Jones, it has a definite chance of succeeding. The economy will get back on its feet, and by buying assets at forty of fifty cents on the dollar, the Treasury will have a hard time not turning a profit. In the best projections, it could result in a net gain of $200 billion. (Will that be subject to capital gains tax, Senator Obama?) Jumping forward to 2011 or 2012, when the gains are realized, what does Uncle Sam want to do with its windfall? The best predictor of the future behavior is past behavior. We will see the greatest expansion of the federal government since the Johnson administration.

We can look at Social Security - another failing system - as an example of what this bailout could evolve to become.

When the Roosevelt administration devised of the Social Security program, it did not explicitly promised that it would be a fund to itself. We just remember it that way in our collective memory, polarized by so much rhetorical subterfuge. So, there were no stops to prevent politicians - always looking for a way to enlarge their own power - to see a pot of gold overflowing and ask, "Who would notice if I just took a few of these extra coins to do some good?"

Do we really think that the current government has developed restraint? When you and I spend too much the bank manager calls or the cashier tells us that our credit card has been declined. When the Congress overspends they seem to always find a way to avoid paying real consequences by robbing Peter to pay Paul. Democrats aim their cuts at Republican pet programs, Republicans call for slashing items that Democrats need for re-election.

The politicans would have us believe that the Republican taxpayer is Peter and the Democrat taxpayer is Paul. We are so mesmerized that we forget that we are all Peter and Paul and we share the same house. The Republicans and Democrats who are quick to always blame their opposition for tax increases are taking money from everyone when the day is done and nothing improves. Republicans continue finding ways to spend unneccesarily and so do Democrats, and the bill lands on our doorstep. The politicking is just a way of distracting us from the three-card Monty game.

The only way to insure against that possibility is for Congress to legislate a three-pronged set of conditions:

  1. The rescue fund must be segregated from all other federal accounts. No intermingling. No "withdrawals" when Congress gets a little hungry from the belt-tightening that is right around the corner.
  2. Profits are used to pay down national debt. This cannot be left to verbal promises and assurances. It must be part of the enacting legislation and it must be firm and impossible to circumvent. Congress must be treated as you would any compulsive; the vice must be locked away until the compulsion is dealt with.
  3. Congress must agree to scour federal programs for pork to find as much of the $700 billion for the bailout from existing revenues. Tax increases should be as small as possible. The effect of tax increases will be economic contraction and a harsher environment for the struggling American family to find work and make ends meet.

If we don't take these steps, or children will be buried in debt and dealing with a declining economy. We've heard that before, but we fail to listen. Instead of 'paying it backward' it's time to do what is right, even if doing it is hard.

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