Sep 26, 2008

Liberalism's Bountiful Harvest - Part 2

“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
.”

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.”


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
?”

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
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."
- Michelle Minton, Policy Analysit for CEI

6 comments:

Findalis said...

Why is it that every economist in the US is against a bail out? Could it be bad economics? Or are they all Republicans?

Churchill's Parrot said...

My Dear Findalis,

Because socialism is not good for economies. That's why.

Cheers,

Charlie

Denise said...

Exactly, Charlie. And it isn't tax payers like me who got us into this fix. Why should we have to be the ones to pay to get us out? If I made a poor financial decision, no one would be bailing me out. It would be my own responsibility and should be. I'm glad House Republicans and McCain are looking out for folks like me.

Joanne said...

I'm thinking that those with no or little money to lose in the markets are more than likely against a bail out. I would just like to see me regain my loss, so I can bail out....if you get my drift, and I do not think I will recover my lossess if a bail out doesn't occur. I do not really know all that is in this bail out, but from what I've seen, it is bailing out Tom, Dick, and Harry - what is up with that? It is like a bail-out pork bill; everyone just step right up and add your name to the list.

The problem is that the government interferred with the conducting of business, instead of allowing business to determine what risks they were willing to take and be responsible for. A pass-the-buck on responsibility was created, and now basically the government feels some obligation to bail them out - could it be guilt or do the democrats in power not want Obama, if he wins, and them to be left to clean up the aftermath.

My gut was telling me to get out before all this went down, but did I listen....no, of curse not....yes, I mean 'curse' not.

Anonymous said...

Denise,

I hope your cup always overfloweth but sometimes "life" happens and you have no control over it. And like you said there would be no one to bail you out. Then what? Homelessness? Sadly the people who really need a to be bailed out, will not be.

Whatever happen to compassionate conservatism, Charlie?

Brendan

Churchill's Parrot said...

My Dear Brendan,

"Compassionate Conservatism" is a redundancy, a term which reveals the fundemental misunderstanding of what Conservatism is, and what Liberalism - in the modern sense - is.

Compassion has nothing to do with governmnet mandated redistribution of people's hard earned money against their will. That is theft. Compassion involves helping one's neighbor through acts of charity - large or small -as directed by one's own conscience.

Aside from giving to charity (have you seen the giving totals comparing Republicans and Democrats by the by?) the most compassioante thing any member of a free market economy can do is to work hard, generate income, pay their own way, use and save their earnings freely and responsibly, and thereby contribute to the overall growth of the economy which benefits all who choose to participate in it.

There are exceptions, but these must not be made the rule.

This mess was created by idiotic policies based on feel good thinking calling themselves "affordable housing initiatives" , "community reinvestment acts", "and "affirmative action directives." This is crime masquerading as compassion (i.e. modern Liberalism) and it needs to be culled out and exposed for what it is.

Any other questions my friend?

Cheers,

Charlie