The era of 'I told you so' is about to commence, but for now let's just deal with the facts. Treasury Secretary Henry Paulson has just side-stepped the portion of the $700 billion bailout package that we were told was its central reason for being made into law. As reported by CNNMoney.com [bold added]:
NEW YORK(CNNMoney.com) -- Treasury Secretary Henry Paulson said Wednesday that the government would broaden the reach of its $700 billion bailout plan to support non-bank financial institutions that provide consumer credit, such as credit cards and auto loans.
In this second stage of the bailout, officials also hope to attract private capital, possibly through matching investments, to give the government's injections more heft.
Paulson also said the government is no longer planning to buy troubled mortgage assets, the original goal of the plan. And officials are continuing to examine ways to help homeowners and slow the tide of foreclosures.
Having read the entire piece of legislation, I can state equivocally that the only boundaries placed on what kinds of asset purchases the Treasury can make with its largesse will be decided by whoever occupies the seat as Treasury Secretary and the president who appoints them. That means that in late January, when Paulson is sent packing and Obama is sworn in, the Treasury will have the authority to buy just about anything it wants.
I won't even begin to make the arguments about economic and fiscal vulnerabilities inherent in this type of policy. Only one argument needs to be made. When the government begins taking ownership in private companies, those companies fail to be private. This country's political future rests on principles that lie diametrically opposed to what the Treasury is now capable of doing.
Pick your favorite ideological hero from early United States history. Unless you happen to be one of those odd fans of Alexander Hamilton's desire for a powerful national bank, you will find that your American idol was sharply opposed to the formation of a central bank controlled by the government. The rationale for this among the founders was diverse but among many it was the fear that a national bank would have direct involvement with businesses and thus force the free market a political actor instead of a purely economic one.
In the bulk of our human history we have seen what occurs when governments become owners in industry individuals and, more importantly individualism, suffers. A new argument for capitalism must emerge just as Hayek's Road to Serfdom did in the era when socialism was in its ascendancy and posed a great threat to free societies and the free people within them.
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