While I don’t agree with everything in this post, he asks a lot of good questions at the beginning.
Why is that every time bad investments made by private institutions go belly up, the U.S. taxpayers are called upon to socialize the financial risk? WHY?
Why is it that suddenly, government isn’t the problem, it’s the solution? [Ed.-My word, even Krugman has some good stuff here. Is the world going to end?]
Democrats and Republican lawmakers are to blame for the current mortgage and investment banking crisis. From a legislative perspective, they saw this coming years ago and did nothing to stop it. This has happened before. Remember when taxpayers were called upon to bailout the Resolution Trust Corporation and the S&L crisis in the 1990s?
I think he gives legislators too much credit. Maybe some saw what was coming. Most just hoped something would happen (like maybe they would get their pensions) before the worst happened.
Fannie and Freddie were worthy of rescue but not Lehman Bros. Then AIG and finally the whole ball of wax is going to get rescued. Will Lehman Bros. get a do over?
Cindy Kilkenny raises the question of financial terrorism. It didn’t originate with her; see her post for more links. I’m still not so sure, but it bears watching.
The Asian Badger (who, let’s say, knows what he’s talking about) had this to say,
In a way, over-regulation was how we got here (goes back to Congress mandating the underwriting of mortgages to non-qualified buyers…so all kinds of lax standards, shady brokers, swaps to manage the new risk, etc. sprang up).
See his post for his remedies. You may not agree with all of them, but many of them are common sense solutions, e.g., #6,
6) In line with #5, above, draw the line in the sand and announce the end of the “Greenspan Put” i.e. no more bailouts…period. I’ve written about the Greenspan Put and how it erases the “stupid penalty”. Put the stupid penalty back into the markets and watch the moronic risk-taking dry up. Risk-taking would still occur…it has to for the economy to move forward…but firms would have to adequately access the risk and price it accordingly. The end of the Greenspan Put would have the added effect of enabling shareholders and potential sharebuyers to realistically evaluate financial firms. [Ed.-Emphasis mine]
McCain told us what his plans were (other than Fire Chris Cox, that is). Obama is keeping his secret (a tip of the conservative hat to Nick). Unless you can get something from this.
Cato gives another result (H/T again to Nick),
In the process of turning US taxpayers into involuntary stockholders in AIG, Fannie Mae and Freddie Mac, federal bullies shoved the voluntary stockholders into the ditch. Bear Stearns stockholders weren’t treated much better.
If you’re still brave enough to own stock in other financial firms not yet blessed with such enlightened assistance from the feds, those precedents should make you nervous. So how could anyone possibly expect these “bailouts” to improve market confidence. [Ed.-emphasis mine]
I find myself agreeing somewhat with Patrick Buchanon states,
Notice who is managing the crisis. Not our elected leaders. Nancy Pelosi says she had nothing to do with it. Congress is paralyzed and heading home. President Bush is nowhere to be seen.
Hank Paulson of Goldman Sachs and Ben Bernanke of the Fed chose to bail out Bear Sterns but let Lehman go under. They decided to nationalize Fannie and Freddie at a cost to taxpayers of hundreds of billions, putting the U.S. government behind $5 trillion in mortgages. They decided to buy AIG with $85 billion rather than see the insurance giant sink beneath the waves.
An unelected financial elite is now entrusted with the assignment of getting us out of a disaster into which an unelected financial elite plunged the nation. We are just spectators.
And what about the CEO’s who got large buyouts from these companies?
In conclusion, I know this post has been long and filled with contradictory statements from different folks. They offer different causes for the problem and propose different solutions. It demonstrates where I’ve been searching for answers.