Thursday, September 25, 2008

No to the bail-out!

We are told of impending disaster. The free market has failed. The government, meaning you and I, have to step in to purchase worthless paper and save the American economy.

Don't believe it! The manipulated free market has failed. Government's push to promote lending to everyone in a misguided attempt to create economic equality has failed miserably. After all, why were Fannie Mae and Freddie Mac created in the first place? Left to its own devices, the free market would not have supported sub-prime lending and the attempt to "help" people to buy homes they could never afford.

A lack of oversight? Perhaps. But the government getting themselves involved in the first place sowed the seeds of the current problem. Now we are told we should proceed to the biggest step toward socialism in US history.

We should not allow this. At most, the government could offer loans to the financial institutions in question, at prime plus 2%. The American taxpayer should not become shareholders in failed companies.

Will there be a hard fall? Yes, very likely. But, the alternative is unacceptable. The national debt would double over-night. What if the bail-out does not work? Do we do it again a few years down the line? Let these institutions fail, keep government out of lending policy and stop trying to promote social change through manipulation of lending practices.

The bail-out will alleviate short term problems but will cause long term ones. Changing regulations to prevent this in the future is laudible. However, the government should not be in the business of salvaging bad businesses, be they auto-makers, airlines or financial institutions. There is no excuse for rewarding bad management. Investigations and appropriate prosecutions should be undertaken as they were in the Enron case.

We will hit bottom, but we will then have nowhere to go but up. Sounds cruel, but postponing it is more cruel.

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