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OpenMarket: Subsidies and Bailouts

  • More Bailouts on the Way

    October 8, 2008
    At last night's debate, Senator McCain floated a horrible idea: to have the government buy up bad mortgages and then write off part of the mortgage and reduce the interest rate so that delinquent borrowers can afford to keep living in their pricey homes.  During the debate, Senator Obama seemed to agree with this stupid idea, pointing with approval to the fact that the bailout bills he supported already permit this to a limited extent.   His only objection seemed to be that McCain was hogging credit for this awful proposal for himself.  However, Obama later raised concerns about the cost to taxpayers of McCain's proposal. Michelle Malkin explains why this is a...
  • Quotes of the Day

    October 7, 2008
    Arnold Kling:
    Instead of thinking of the pending bailouts and financial regulation as a new era of government supervisions of markets, think of it as preserving the system in which a Harvard elite controls other people's money. In fact, very little is likely to change. Reading the news stories about how Secretary Paulson plans to implement the bailout, it seems as though the same people will be in charge of the money. Print some new business cards, change the logo on the front from "Goldman Sachs" to "U.S. Treasury," and everything else continues as it was. It's just that it becomes a lot more difficult for ordinary people to opt out of using the elite's money management services.
    Indeed. Alexander Hamilton would be so happy. And from across the pond,...
  • Deregulation Wasn't to Blame for Financial Crisis

    October 7, 2008
    Even the reliably-liberal BBC says that deregulation wasn't the cause of the financial crisis.   Other liberal journalists like Washington Post columnist Sebastian Mallaby have made the same point. The government-sponsored mortgage giants Fannie Mae and Freddie Mac played a big role in spawning the mortgage crisis.  Lawmakers like Barney Frank blocked crucial reforms that might have reined them in.  Now, Frank is trying to change the subject,...
  • The Bailout will cost 20% of the entire current budget

    October 6, 2008
    My Calculations: The 2007 federal outlays from fiscal year 2007 were 2.73 trillion. The 700 billion is to be allocated before Dec 31, 2009 (or Oct 3, 2010 with the extension). Taking the 15 months until Dec 2009, and multiplying 15 divided by 12 by 2.73 trillion (because of the Continuing Resolution) would be 3.4125 trillion. Then taking 700 billion divided by 3.4125 trillion is 20 percent. Why is the market tanking?  Wall Street knows what this will do to our economy.
  • Lehman Bros hearing -- Rep. Maloney blames deregulation, ignores her own role as Fannie's enabler

    October 6, 2008
    At the hearing being held today by the House Oversight and Government Reform Committee, in which former Lehman Brothers CEO Dick Fuld is now testifying, an earlier panel attempted to look at the causes of Lehman's collapse and the broader credit cirisis. And this gave an opportunity to committee members to ride their various hobby horses. Rep. Carolyn Maloney's horse and "whipping boy" was deregulation. She blamed the entire crisis on deregulation, and specifically the repeal of the Depression-era Glass-Steagall law that separated commercial and investment banking. The repeal was done through the Gramm-Leach-Bliley Act, which Maloney neglected to say was passed on an overwhelmingly bipartisan vote and signed by President Bill Clinton in 1999. Clinton, in fact, recently defended the law, saying it didn't contribute much to the...
  • All of the bailouts are expected to $1.8 trillion and we get "green credits" and IRS fun!

    October 4, 2008
    Thanks to Declan McCullagh for his article that highlights the non-financial portions of the bailout. Particularly useful is his chart (with information from Reuters) that shows that all the various bailouts of this year will cost $1.8 trillion. Here are some useful comparisons: the GDP of the UK is $2.1 trillion. The GDP of Australia is $646 billion. I wonder if it makes more sense to rent Australia for a couple of years?
  • Market down on bailout -- Don't compound damage with overregulation of 'Main Street'

    October 3, 2008
    Today -- five days after a courageous independent vote against Treasury Secretary Hank Paulson's $700 billion bailout for Wall Street -- the U.S. House of Representatives disappointingly approved the same basic measure. Many of the bill's other "sweeteners", such as earmarks and a regressive increase in deposit insurance for upper income bank customers --will also cost taxpayer hundreds of billions of dollars. All this week I and my colleagues have pointed out ways this bailout could, in addition to being costly, be counterproductive for the economy. Wall Street may have been feeling this "buyers' remorse" today as the Dow Jones Industrial Average pared back ealier gains to end the day down by 150 points. As Yahoo Finance noted, "financial stocks, which had traded sharply higher on the promise the bill would be passed, fell after the House vote on profit-taking and as the market...
  • CEI President Issues Statement on the Bailout

    October 3, 2008
    Statement of Fred L. Smith, Jr., President of CEI: The bailout bill that passed the Senate is no improvement over the bill the House rightly rejected on Monday.  Representatives should stick to their guns and reject the bill for the following reasons:
    • The bill perpetuates an unrealistic view of homeownership. Ill-considered legislative and regulatory initiatives have turned the American dream into the American nightmare for many people. Failing to reform the political programs and pressures that triggered the current crisis merely sets us up for the next crisis.
    • The bill tries to relieve symptoms without addressing causes. A lack of proper monitoring of the creative financial instruments that have evolved in recent decades has resulted in “toxic” debts that are difficult to identify and...
  • Bailout Bill Grows More Bloated, Ignoring Alternatives

    October 3, 2008
    There are alternative approaches to the bailout that would cost taxpayers less.  But instead, Congress is expanding the bailout bill to stuff it with more pork and put more burdens on the already overstretched FDIC.  Economics professor Russell Roberts explains how the government spawned the mortgage bubble in the Wall Street Journal. The bailout will cause inflation and the risk of ...
  • Kling hits secondary market -- misses benefits

    October 3, 2008

    Arnold Kling hits the creation of the secondary market for mortgage loans as the major factor -- 50 percent — causing the current financial crisis. As Kling wrote:

    In hindsight, I think that the crisis was caused by a) creation of the secondary mortgage market (50 percent) b) low down payment mortgages (30 percent) c) the "suits vs. geeks" divide (15 percent) d) other (5 percent)

    The more I think about the secondary mortgage...

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