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NO TO BAILOUT!!

Economist Jeffrey Miron says the bailout plan presented to Congress was the wrong solution to the crisis

CAMBRIDGE, Massachusetts (CNN) — Congress has balked at the Bush administration’s proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the “troubled assets” of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here’s why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, [the Democrats in] Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared. [We can thank Chris Dodd, Barney Frank, Pelosi, et al, for this.]

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration’s claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

As Friedrich Hayek wrote in 1932, “Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion. … To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about …”

Hey MSLSD…you blatently liberal “reporters”….
Newt G. is the best thing to happen to America right now. He is somebody with common sense, experience, intelligence, and a real plan for getting us out of this mess. I wish he was running for President. I would vote for him and feel good about it.

Economist Jeffrey Miron says the bailout plan presented to Congress was the wrong solution to the crisis:

Congress has balked at the Bush administration’s proposed $700 billion bailout of Wall Street. Under this plan, the Treasury would have bought the “troubled assets” of financial institutions in an attempt to avoid economic meltdown.

This bailout was a terrible idea. Here’s why.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, [the Democrats in] Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared. [We can thank Chris Dodd, Barney Frank, Pelosi, et al, for this.]

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources.

Thoughtful advocates of the bailout might concede this perspective, but they argue that a bailout is necessary to prevent economic collapse. According to this view, lenders are not making loans, even for worthy projects, because they cannot get capital. This view has a grain of truth; if the bailout does not occur, more bankruptcies are possible and credit conditions may worsen for a time.

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

The costs of the bailout, moreover, are almost certainly being understated. The administration’s claim is that many mortgage assets are merely illiquid, not truly worthless, implying taxpayers will recoup much of their $700 billion.

If these assets are worth something, however, private parties should want to buy them, and they would do so if the owners would accept fair market value. Far more likely is that current owners have brushed under the rug how little their assets are worth.

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.

I agree with Ylem, very well said.

I think every day workin folks have LOST ALL FAITH, TRUST, and CONFIDENCE in the US GOVERNMENT!

The US GOVERNMENT is trying to instill FEAR by lying to the American people about how if the bill does not pass, financial armegeddon will basically happen.

Remember folks, alot of the same politicians who are now telling us that the BAIL OUT must be passed are the very same politicians who allowed us to get here in the first place.

Don’t be DECEIVED and LIED to AGAIN!

THIS IS SUCH STUPID CRUD. IF JOE KNEW ANYTHING, HE MIGHT STILL BE IN GOVERNMENT, BUT CLEARLY HE MAKES MORE $$$ IN CNN JUNK REPORTING AND PANDERING. TALK ABOUT BETRAYAL OF PARTY AND PRINCIPLES….AND HE WANTS TO ATTACK GIGHRICH!!

GIGHRICH UNDERSTANDS THAT THIS IS A STUPID WASTEFUL BANDAID AT BEST….NOT A SOLUTION TO ANY PROBLEM.

GIGHRICH UNDERSTANDS, AS DO ECONOMISTS FROM U OF CHICAGO THAT HAVE PUBLISHED THE SAME INFO, AS HAS STEVE FORBES..

LET THE MARKET WORK….AND HAVE THE SEC SUSPEND MARK TO MARKET REGS SO THAT LIQUIDITY IN CREDIT IS RELEASED.

THE BANKS AND ECONOMY ARE NOT IN TROUBLE OTHER THAN REACTION TO SORRY LEGISLATION AND LACK OF PROPER OVERSITE. THE CONGRESS KNEW WHAT WAS HAPPENING, BUT THE DEMS WANTED TO GET MORE MINORITIES INTO HOUSING TO KEEP THEIR VOTING BASE IN PLACE. NOTHING ELSE, EXCEPT THAT ALL THE PEOPLE MAKING MONEY FROM THE SUBPRIME DEBACLE WERE SENDING CAMPAIGN CONTRIBUTIONS TO FRANK, DODD, SCHUMER, AND RANGEL.

THE ISSUE CAN BE FIXED WITH SOUND BUSINESS PRACTICES. IT WILL BE DESTROYED FURTHER BY ALLOWING THE POLITICAL HACKS IN OUR CONGRESS AND OUR FAILED ADMINISTRATION CABINET MEMBERS TO PANIC THE CONGRESS TO PUT MONEY INTO THE HANDS OF PAULSON’S BUDDIES.

STOP LOOKING FOR CONSPIRACY OR FUTURE CANDIDACY ON THE PART OF SMART FOLKS. THAT IS PRETEND JOURNALISM.

The real question (rhetorical since we know the answer) is did Pelosi (not so) secretly scuttle the bill. The dems can pass it since they have the majority. They can put whatever they want into the bill. They don’t even believe in their own bill and they aren’t man enough to take the credit/blame for it so they are running scared trying to get the repubs to sign on so they can blame them. Pelosi is one of the worst ’speakers’ ever and is certainly no leader. The dems are getting what they deserve for putting her in that position.

Over 90 dems did not vote for the bail out. And this is some how a GOP failure? Even Bill Clinton said this was the dems fault and that they had a chance to fix this in 2004.

Gingrinch was all over the television shows openly against the profit payout bill. why does this whore lie and make it sound like he was secretly doing this in some cryptic fashion. The amazing thing is that ignorant and stupid people are going to slurp up what she says like barney frank in a sperm bank.

Shrub is using the same tactic that he used for the Iraq war, “BE AFRAID, BE VERY AFRAID!” But luckily it’s only a month before the election, and the taxpayers are ten to one against the bailout. So the Republicans didn’t dare go against their constituents, and voted against the bailout. And Pelosi wasn’t about to let the Republicans sucker the Democrats into taking the blame for a bailout that is doomed to fail, no matter what is done. So she made sure that at least a hundred Republicans voted for the bailout or it didn’t pass, which is what happened. This whole thing is about enslaving the American people, because it’s easier to control slaves than free people. But with a $10,000,000,000,000.00 national debt, we’re already enslaved. But with a $12 trillion national debt, it makes it easier to destroy Social Security. They’ve already “BARROWED” over a trillion dollars from Social security, which will never be paid back. So in reality, they stole it. What’s funny is these thieves actually think they are going to get away with it, even as their sick plan is imploding before their eyes right now.

im glad the bail out was blocked,because itgives people who lost their 401k the past 8 years another chance to get back in to the market. does this mean people dont have to pay back their credit? cause that would be sweeeeeeet!!! america is in a huge credit crunch. who isnt in debt these days? money has value because we say it does. so does the dollar have value or is it just a piece of paper? The market is going down to pick up a bunch of new “main street” investors. it’ll be strong in a year or two,and if your smart you’ll be on the ride up!

Pelosi blew it up w/ her 2 min. rant. Surprise! BO numbers go up the longer the economy goes down.

In addition, Andrew Mitchell has ALWAYS been a shill for the dems, that’s not news.

I wonder what her and hubby Alan Greenspan talk about in bed at night.

The Democrats are just going to scrap any deal until Nov.4 in the hopes of picking up more seats.

Pelosi didn’t blow it up. Nobody cares what that dumb b!tch thinks despite what a few embarrassed republicans said. Gingrich may have saved the day.

I thought this was a serious report but then saw that it was the “Morning Joe” gossip show.

Actually, as someone mentioned earlier, this was nothing done “in secret” as Andrea Mitchell alluded to. Newt Gingrich has been railing against this bailout bill in public ever since Hank Paulson brought this to the American public. Newt had voiced his opinion in several venues including internet, print, and TV mediums. Give me a break, talk about trying to make controversy where there is none. She’s trying to make is sound as though Mr. Gingrich was involved in behind the scenes secret meetings to torpedo this bill. Mr. Gingrich, changed his mind at the last minute – which was the case for many pundits.

What can one expect anymore. Cable news is perhaps one of the worst journalistic mediums in America today and it will only get worse as it devolves into an entertainment product for the dullard American brainiacs who might otherwise be watching “American Idol.”

I’d say that Andrea Mitchell should get a clue but I’m afraid she like many others are beyond hope.

Vote no no no to the bailout. Pucklosi is such a lying gasbag…will someone please vote her out of office? We have nothing to fear by voting against such a bailout that would also give the flexibility to some appointed crook in the government to bail out foreign entities as well as American, with the American entities I’m sure getting secondary treatment.
Folks, wake up! They are stealing our country blatantly because too many are too stupid! Yes, you are just as much an idiot as the thieves in our government when you don’t vote to change these democrats who could have voted to regulate these two agencies and didn’t. Watch yesterday’s Breitbart videos from 2004. Dimocrat after dimocrat, i.e.Maxine (brainless) Waters, Clay, and others continually denied the Republicans a vote to install regulations. It is all there in the videos for all of you to see and digest.
Stop being stupid before it is too late.

Joe, where have you been? Newt has been OPENLY against this bailout bill from the very beginning. If you would watch Fox NEWs to get some real information, you would have heard him — over and over again. This was not back stab, there was no secret. Newt has been against the plan from the beginning. Now, here’s a scoop more and more people are quoting Newt’s alternative, and it makes complete sense. 1) Do away with Mark to Market (the Treasury Dept can do this without Congress), CUT CAPITAL GAINS taxes sharply, and make any money from the govt to banks a workout not a bailout, in terms of loans not a give-out. Pelosi et al are covering the behinds because the Dems caused this problem in the first place.

Mr McCain, are you listening? Make Newt’s plan the McCain plan and challenge the Dems to say no.

The above article states:
“…what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

The right view of the financial mess is that an enormous fraction of subprime lending should never have occurred in the first place. Someone has to pay for that. That someone should not be, and does not need to be, the U.S. taxpayer.”

True enough. But while we’re slinging blame around, let us not forget Andrea’s hubby ALAN GREENSPAN, whose relentless *mucking around with interest rates* in recent years helped to SET UP this crisis we are now fretting over.

Wonder how large Alan G’s Golden Parachute is?

Maybe it’s time to take the pitch forks and torches to Washington like in the Frankenstein movies when the villagers stormed the castle. But the sad part is Frankenstein and the wolfman always came back.

wow! so andrea and joe and mikka are admitting 95 democrats voted the way newt gingrich suggested? cool.

Hey wake up people. If this was anything other than a scam by the fat cats, the stock market wouldn’t be up 400 points today. It’s the super rich that belong to the S&P 500 that made the market crash yesterday. And since their attempt to scare everybody failed, they’re putting it all back in the market today. Just go to show whose side McShrub is on.

People: the free market, Chicago U, supply side, Frederick Hyeck, Milton Friedman, self regulation, invisible hand, hands off policies have failed. They have failed the ultimate test of the very ‘free market’ they so worship. The ideology, as practiced by the white, right, wasp Conservatives is nothing more than a deception. A vote for the law would be a tacit admission that it has failed. Unfettered capitalism has hijacked the democracy, basically hallowed it out. Capitalism is a tool of democracy not the other way around. The price of failure is high.

Not sure which “people” you are talking to. This is not an episode of the X-files. The villain in the majority of these failures are left wing muck rakers like BHO. Who’s threats against financial institutions that they had “better lend to the poor” code for inner city blacks. Thrust these institutions under the microscope of left wingers as well as groups such as Acorn. So instead of standing up to these parasites and simply saying no many made billions in loans to poor credit risks. That is the story of these bailouts. And in true irony the people who tried to fix this situation are now taking the blame. While one of the chief instigators is now the front runner for the White House. History will not be kind to these scoundrels, they are lurching the economy towards Socialism. When in reality that it is Socialism that is to blame for a good part of what ails us.

Newt Gingrich’s Plan makes the most sense of all.

Stop listening to Democrats they do not know anything. Why would you trust a party who thinks that killing babies through abortion is the right of women??

In reality it’s morons like dswilli and cathman that are the cause of the problem.

RJ does not like the truth because it’s uncomfortable. Who’s the moron? Someone like myself who knows what’s going on or someone like you who takes the word of a habitual liar as fact? Here’s some more truth for you I wouldn’t hire a loser like yourself to wash my dogs.

As for being the “cause of the problem”. Come on big man, we can solve this, in fact I’ll come to you. Tell me where, tell me when.

Andrea is feeding her audience a sh!t sandwich.

RJ is typical left winger, brave as hell when others do his dirty work as he hides in anonymity. When called out, not so much.

Andrea! Your Mom is going to wash your mouth out with soap. In every media outlet NG had poohed on the bailout. What a warped world you must live in.

Isn’t this just the most laughable things you’ve ever seen?

Andrea acting like a little schoolyard tattle-tail while the others gasp with bulging eyes and hands over their mouths.

Isn’t it just the least bit incredible to these people that PIAPS Pelosi told some 95 Democrats that they didn’t have to vote for the “bailout” bill if it would damage their re-election chances, but then, awong wiff Bawney Fwank, told the country that 12 Republucans defeated it?

This was a contrived “October” surprise by the Democrats. They believed that the Flim Flam Obamaman was regarded by the American public as being strong in the economy of the United States. So they wanted to devise him a plan to make him a hero in the crisis.

They left this crisis to linger until just the right moment when the Flim Flam Obamaman was really down in the polls.

They tried to put it on the shoulders of Senator McCain by telling him he had to come to Washington to help. Then he pulled their bluff and showed up. They had nothing to present but said they did and told him not to come.

His presence there would blow up their plan and it did. When he requested the meeting with all parties and the President, they left it up to the Flim Flam Obamaman to speak “with authority” for the rest of them. President Elect McCain did not speak because he knew he was being set up and so did the Republican leadership.

The Republican leadership under the direction of President Elect McCain put together items that needed to be put into the legislation and some that needed to be taken out. A concensus was made between the parties.

The Democrats then decided that they did not want to be blamed for this bill should it fail and wanted to put it on the backs of the Republicans. They polled their party…the ones who were retiring voted yes…the ones who were up for re-election vote no to make their constituents happy and act like they were doing what they wanted to get re-elected.

The Republicans assumed that all Democrats were voting for this…when they saw a bulk of voting no…the jig was up!

Partisan politics as usual by the devious Democrats and the Speaker of the failed Democratic House – Marie Antoinette – Pelosi.

Now…that it has failed…and the jig is up…and the American people know the facts…the Democrats are in deep doo doo up to their necks! They had better produce and produce well and then back it up by their vote.

America…we need to clean house on these Democratic slugs. They have done nothing but play partisan politics since the day they “promised” they would not. They have to go!

I am voting for President Elect McCain and Vice President Elect Palin in November. I will also be voting straight Republican to get rid of as many Democrats as I can. I want to give President Elect McCain the best opportunity and a working Congress to help him get through the reforms and changes that we so desperately need in our country. President Elect McCain puts country first and I will too in November!

VOTER REVOLUTION…HERE AND NOW!

I have found more common ground with the hard left than the moderate right.

I believe more and more that the centrists are the most corrupt public servants we have. That is the big scam in this country and it is revealing in times like these. Moderate dems and moderate repubs are the ones with their clubs in the cookie jar. They are the ones full of double talk while getting bought out by corrupt lobbying.

The moderates of both those parties are economic structuralists that have done everything in their power to build a moat around their power and they just tried the biggest wool over the eyes power grab in the history of this country.

Wake up true conservatives, wake up true liberals… You are both patriots and neither candidate heading either party truly represents your ideals. You are being smokescreened and sweet talked and you are having a difficult time seeing through it.

I think true conservatives have been awakening to this over the past two years, slowly. And I am now noticing with many of my pro liberty liberal friends on the other side – with the pushing of this dispicable bill – they too are awakening.

If you consider yourself a principled pro liberty conservative or a principled pro liberty liberal, stop fighting eachother…in this time period, you may not realize that you have plenty of common ground and an alliance would serve you both well. For the sake of your country, forget McCain, forget Öbama, and fight for eachother! The corrupt center is your common enemy.

Good luck.

Thank You! Newt
You still the man.

Joe was one of the six that help get rid of Newt…from his speaker position. Joe’s a sell out, chump, closet Dem.

Cathman intoned, “Why would you trust a party who thinks that killing babies through abortion is the right of women??”

Sheesh! You think no REPUBLICAN WOMEN ever had or have abortions???!!

What a naive fool!

Wonder how large Alan G’s Golden Parachute is?

The Feds ought to go around and CONFISCATE ALL THOSE GOLDEN PARACHUTES, and use the BOOTY they harvest to SOLVE THIS FINANCIAL-CRISIS PROBLEM!

ClassiclLiberal:

What flaming idiot you turned out to be.

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