“Last time I saw it all coming and cried aloud to my own fellow-countrymen and to the world, but no one paid any attention.” -Sir Winston Churchill, March 5, 1946. Westminster College, Fulton, Missouri
We have always been partial to those unique individuals who are able – via their powers of observation and induction, their understanding of human nature and history, their vast experience and common sense – to “prophesy.” This involves no supernatural component. It is, however, profoundly valuable.
Such individuals and their ilk ought be regarded highly and sought out in times of turmoil and uncertainty. We are clearly in such times at present.
Thus we encourage those of you who are not familiar with the man, to acquaint yourselves to one Mr. Fred L. Smith Jr., President and Founder of the Competitive Enterprise Institute.
The Competitive Enterprise Institute is a non-profit public policy organization dedicated to advancing the principles of free enterprise and limited government. In today’s common parlance that would make them a “right-wing nuthouse.”
Not surprisingly, the Competitive Enterprise Institute (CEI) rejects the current bailout proposal before the United States Congress and favors the alternative proposed by The Republican Study Committee, a caucus of pro-market members of the GOP Congress.
Pure partisanship? Election year hijinks? Placing politics before country? We think not.
For consider the seemingly miraculous “prophesy” (below) of CEI founder and president Fred Smith regarding the current economic fiasco spoken before a U.S. House of Representatives Subcommittee on Thursday, 15 JUNE, in the year of Our Lord, 2000!!!
We recommend you read his entire statement. For your edification and enragement, however, we have selected certain key excerpts below. (Subtitles supplied by yours truly.)
Corporate Welfare
“Clearly Fannie Mae and Freddie Mac were created for “good” purposes – now
the issue is whether the special privileges they’ve been granted, specifically their implicit
government “insurance” policy, act to distort and destabilize the marketplace. …"
---
“There should be no subsidies to private parties without holding these parties accountable to the elected representatives of the people: No subsidies without representation!
On the other hand, if these subsidies are not warranted, then let us eliminate them and privatize these entities as expeditiously as possible. What I would hope this Committee will not do is to perpetuate the mixed status these organizations now enjoy. To paraphrase William Shakespeare: Fannie Mae and Freddie Mac are neither private “fish” nor political “fowl.” No one knows how to evaluate them – it is time to end this confusion. Privatizing the profit side of the ledger while socializing the loss side is a sure-fire recipe for disaster.”
the issue is whether the special privileges they’ve been granted, specifically their implicit
government “insurance” policy, act to distort and destabilize the marketplace. …"
---
“There should be no subsidies to private parties without holding these parties accountable to the elected representatives of the people: No subsidies without representation!
On the other hand, if these subsidies are not warranted, then let us eliminate them and privatize these entities as expeditiously as possible. What I would hope this Committee will not do is to perpetuate the mixed status these organizations now enjoy. To paraphrase William Shakespeare: Fannie Mae and Freddie Mac are neither private “fish” nor political “fowl.” No one knows how to evaluate them – it is time to end this confusion. Privatizing the profit side of the ledger while socializing the loss side is a sure-fire recipe for disaster.”
Moral Hazard for the Amoral?
The moral hazard problem arises when we bail out investors when things go wrong, when we move toward a “profit-side capitalism/ loss-side socialism” strategy. This is what happened in the S&L crisis and the costs were massive. “Moral hazard” is always a risk when an activity is insured – but the private sector is far better at policing such induced risk. When it’s your money at stake, you’re more careful. Political money managers faces weaker market disciplines: if they fail, they only share in the loss. Government risk subsidies anaesthetize our sensitivity to risk. As Treasury Undersecretary Gary Gensler noted: “Promoting market discipline means crafting government policy so that creditors do not rely on governmental intervention to safeguard them against loss .”…
The moral hazard risks associated with government guarantees have not gone away;
indeed, one might argue that they have now been concentrated in Fannie Mae and Freddie Mac.”
The moral hazard problem arises when we bail out investors when things go wrong, when we move toward a “profit-side capitalism/ loss-side socialism” strategy. This is what happened in the S&L crisis and the costs were massive. “Moral hazard” is always a risk when an activity is insured – but the private sector is far better at policing such induced risk. When it’s your money at stake, you’re more careful. Political money managers faces weaker market disciplines: if they fail, they only share in the loss. Government risk subsidies anaesthetize our sensitivity to risk. As Treasury Undersecretary Gary Gensler noted: “Promoting market discipline means crafting government policy so that creditors do not rely on governmental intervention to safeguard them against loss .”…
The moral hazard risks associated with government guarantees have not gone away;
indeed, one might argue that they have now been concentrated in Fannie Mae and Freddie Mac.”
Poverty Pimps
"Other panel members will address the proposition that these agencies are anti-poverty programs – that they are a means of providing “affordable” housing to low-income and minority consumers. Housing subsidies raise the price of housing – this is a well-known phenomena that reduces the desired impact of most subsidies. As noted above, much of the estimated subsidy (about one-third according to a CBO study) benefits the management and the shareholders of these private firms.
Can anyone imagine Congress approving a $2 billion plus appropriation bill to benefit the
management and shareholders of any other private sector firm? The wording of the CBO study was colorful: “As a means of funneling federal subsidies to home buyers, therefore, the GSEs are a spongy conduit – soaking up nearly $1 for every $2 delivered.” For that matter, can one imagine an honest debate about the merits of authorizing $4 billion to reduce home ownership costs for middle- and upper- income Americans?”
"Other panel members will address the proposition that these agencies are anti-poverty programs – that they are a means of providing “affordable” housing to low-income and minority consumers. Housing subsidies raise the price of housing – this is a well-known phenomena that reduces the desired impact of most subsidies. As noted above, much of the estimated subsidy (about one-third according to a CBO study) benefits the management and the shareholders of these private firms.
Can anyone imagine Congress approving a $2 billion plus appropriation bill to benefit the
management and shareholders of any other private sector firm? The wording of the CBO study was colorful: “As a means of funneling federal subsidies to home buyers, therefore, the GSEs are a spongy conduit – soaking up nearly $1 for every $2 delivered.” For that matter, can one imagine an honest debate about the merits of authorizing $4 billion to reduce home ownership costs for middle- and upper- income Americans?”
Had your chance; muffed it!"
“Too often, Congress does nothing when things seem to be going well – and then finds itself unable to take disciplinary action when the crisis occurs. At that late point in the process, the pain would be too great and the political resistance too strong. When it’s not raining, the roof isn’t leaking – when it’s raining, it’s too difficult to fix it. Surely we can do better…”
Surely, we did not. Will we now?
Cheers,
Charlie
Surely, we did not. Will we now?
Cheers,
Charlie
UPDATE: From the Competitive Enterprise Institute's OPEN MARKET blog:
"Yeah, maybe irrational greed is a factor in the current crisis, but it is the irrationality of regulators and the greedy demands of community groups that we should be pointing fingers at. If banks had been allowed to act in their own long-term best interest, sure some ill-managed institutions would still crumble, but we would not be witnessing such a wide-spread failure that indicates a system wide error in judgment."
"Yeah, maybe irrational greed is a factor in the current crisis, but it is the irrationality of regulators and the greedy demands of community groups that we should be pointing fingers at. If banks had been allowed to act in their own long-term best interest, sure some ill-managed institutions would still crumble, but we would not be witnessing such a wide-spread failure that indicates a system wide error in judgment."
- Michelle Minton, Policy Analysit for CEI
