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OpenMarket: Subsidies and Bailouts

  • Republican Study Commitee plan now best viable alternative

    September 29, 2008
    The stunning defeat of the Hank Paulson's socialism-for-Wall Street bailout on Monday has just made planks of a pro-free market alternative much more viable. As Open Market has noted before, The Republican Study Comittee, a caucus of pro-market members of the GOP Congress, has presented such a plan that would be much more effective at stopping the contagion than the Paulson bailout, and many of its provisions would not cost taxpayers a dime. The RSC plan is chock-full of measures to remove barriers to economic growth and market-distorting subsidies. It would suspend capital gains taxes to put trillions of dollars of capital in the economy, and set Fannie Mae and Freddie Mac, which as CEI has documented were at the...
  • Bailout fails -- Move on to Mark-to-Market Reform

    September 29, 2008
    Oh, Happy Day! And it certainly is for all those who value freedom, responsibility and the true free market in which individuals are free to profit from their risks on the condition that they don't stick the rest of us with their losses. It's not hyperbole to say the Republican and Democratic backbenchers who defied both parties' leadership to defeat this $700 billion package of Wall Street socialism literally saved America. Whatever their reasons, this defeat (or rather victory for freedom), means that...
  • Investing in Communal Failure: The Current Economic Crisis as a Result of Regulation

    September 29, 2008

    Unfettered greed is the suspect many point at to explain the current economic crisis. To some extent, they are right, but it isn't irrational greed on the part of bank managers or fat cat CEOs. It is the unwieldy bank regulations that forced the entire industry to walk the proverbial plank and then blame it for drowning.

    Critics have alternately claimed that over-regulation and under-regulation are the causes for the current crisis. I believe one specific regulation, the Community Reinvestment Act (CRA), should shoulder a lot of the blame for creating an environment where a lending institution's short-term survival hinged on it making the decisions that in the long-term would likely cause its demise.

    As I noted in my paper ...

  • Stocks Climb as House Rejects Bailout

    September 29, 2008
    Though the bill may have been defeated for the wrong reasons—like the lack of freebies, giveaways, and handouts that many on the left had hoped for—the defeat of the bailout bill in the House has brought stocks out of their decent. The Dow Jones is now climbing. But how can this be? How could a bill that was designed to save our economy, our country, and the world be the cause of the Dow's drop today? Easy, the bill was introducing such incredible uncertainty into the market that investors were panicking. It could also be that Wall Street—despite the recent bank closings—is still smarter than Washington. The reactions of investors suggests they realize the bill may have done more harm than good. For more on why a defeated bailout bill is a very good thing and why the world doesn't need saving, read...
  • BREAKING NEWS: Bailout Vote Fails in House

    September 29, 2008
    The House of Representatives just voted down the $700 billion corporate finance bailout, despite earlier urging from President Bush to push the measure through. Look for in depth analysis from our very own John Berlau and the rest of the policy team as the day progresses. Read CEI's roundup of the continuing finance crisis (and sign up for email updates) here. NEW: John Berlau responds (and speaks!) in reaction to today's vote. Updated post and audio clip...
  • Bailout Bill Just Got Worse, But Congress May Approve It Without Reading It, Based on Misleading Claims

    September 29, 2008
    The bailout bill has been larded up with additional welfare that will increase its cost, but the House will likely approve it today without even reading the bill, which had already expanded to more than 100 pages last night.  Worse, some conservative lawmakers may vote for it based on the misleading claim that it contains no welfare for delinquent and defaulting borrowers who are now facing the consequences of years of living beyond their means. The Associated Press, which didn't bother to read the bill before reporting on it, claimed today that "not in the bill" is "help for troubled homeowners."  (See Martin Crutsinger, Associated Press, “...
  • Bailouts to local govts and also foreign authorities

    September 29, 2008
    Andy McCarthy on National Review's Corner points out,
    The scheme "[a]llows the government to purchase troubled assets from pension plans, local governments, and small banks that serve low- and middle-income families."So in addition to rewarding irresponsible lenders and borrowers, we taxpayers are now to be "protected" by buying the toxic debt of states, cities and municipalities.  It's one thing to throw a life-line to the credit industry; local governments, by contrast, have the ability to cut spending drastically or raise taxes if their inhabitants want government services.
    Did Andy also notice Section 112 in Sunday's draft (emphasis mine) ?: "To the extent that...
  • $700 billion to worsen economy? -- Berlau in American Spectator

    September 29, 2008
    Here are excerpts from my story in today's American Spectator Online on how the $700 billion bailout could actually make things worse -- in terms of resulting inflation and even a further contraction in credit due to the government purchases' interaction with the mark-to-market accounting rules. To read the piece in its entirety, click here. ""The government has to do something to keep markets from falling and the economy from getting worse." How many times have you heard that mantra this past week from President Bush, Treasury Secretary Hank Paulson, Democrat leaders, the news media, and even some ostensibly conservative periodicals? But what if the bailout, as originally proposed and in its latest incarnation, would spend $700 billion of taxpayers' money and actually make the economy worse? Believe it or not, there...
  • Hurry up with that exchange

    September 29, 2008
    Credit default swaps remain a large part of this financial crisis, with some analysts crediting the failures in the $58 trillion market as more important than mortgage-related ones. According to IBD, "Counterparty risk was at the heart of the problems that sent Bear Stearns, Lehman and AIG spinning helplessly down the drain. Investors not only worry about their counterparties, but their counterparties counterparties." In several weeks, though, CME, formed from the merger of the Chicago Board of Trade and the Chicago Mercantile Exchange, will launch exchange-based trading for credit default swaps. A clearinghouse is also being planned by Clearing Corp., which is owned by 17 financial players including Goldmans and Citigroup and UBS.  According to IBD,
    ...
  • Beachcombing on the Bailout

    September 26, 2008
    Here are a few treasures I found this morning: Kathryn Jean Lopez on National Review Online points out that some of the 20% of the profits (a floor) recovered from the bailout would go to voter-fraud-ACORN!!!   (See Hans's post below and here and here and here on ACORN.) (A commenter notes that if most purchases lose money but one makes money, the taxpayers eat the losses while the slush fund gets the profits.) John Paulson, not to be confused with the former Goldman CEO,...

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