Friday, September 26, 2008

The Mother of All Bail-Outs

Hypothetical Fan Mail: "Dear A Random Stranger, Why don't you update your blog more often? Also, is it wrong for me to have detailed fantasies about you? Signed, A Loyal Reader."

Hypothetical Answer: "Dear A Loyal Reader, I'm actually kind of busy. Either I'm doing stuff I'm supposed to be doing, or I have temporarily lost all motivation. I almost didn't even have time to submit football picks this week for the office pool (no longer run by me, thanks to The Friendly Jerk). Secondly, it's never wrong to have detailed fantasies about me. Ever. I'll even help you out with some starter scenarios. Scenario One (for the ladies): We're in a plane crash and only the two of us survive on an uncharted island. Due to the nature of the accident, I lose my shirt and 50 pounds, and you become hot (if you're not hot already). Scenario Two (for the dudes): I come over to mow your lawn on the hottest day of the year. The lawnmower eats my shirt and 50 pounds from my torso, while moving so quickly it cauterizes the wound, leaving only a small scar resembling that of an appendectomy. Frightened at the near catastrophe, I cool off by spraying myself with your garden hose, while you watch from the kitchen window, reevaluating your sexuality. Happy fantasizing! Signed, A Random Stranger."

All right, when I wrote last week about being Communist, I still thought I had my tongue in my cheek. Now it turns out I unwittingly had my tongue wherever it goes when you're telling the truth. Seven hundred billion dollars? It sounds like a line from an Austin Powers movie. Here are my reactions:

  1. The president has been taking correspondence courses from the School of Pulling Numbers Out of Your Ass. It reminds me of Franklin Roosevelt's fool-proof plan to end the Depression by having all the unemployed plant a million trees. Oooh, a million trees! Um, what are they going to do after the third day of work? It turned out Roosevelt's backup was to have them die fighting even more dictatorial fascists. One thing that's nice about being a fascist is you've always got your other fascists to bail you out.
  2. This is seriously the best we can do? Buy everything that anyone might want to get rid of? I wonder what type of debt these private companies want to sell to the government, the good debt or the bad debt? I mean, the government has a lot of people working for it who are supposed to know a thing or two about the economy, but their solution is to write off all the bad debt by printing enough money to cover it. That's what you expect out of a Beavis and Butthead episode. (Aside: there were times when Beavis was hilarious. Butthead, not so much.)
  3. Any plan is suspect when the people proposing the plan say, "You'd better approve it or we're all going to DIE!" Actually, the markets were recovering pretty well last Thursday and Friday, with oil at its lowest price in seven months, until the government unveiled this plan.
  4. Alternatives exist, but you wouldn't know about them. All we hear is that $700B is some magic number that will solve the problem. Politicians who talk of "solving" problems are cynically betting you believe them that "problems" can be "solved." Lo, some experts fear a bailout might cause a bigger problem. It's like no one's ever heard of the Depression.

Speaking of the Depression, here's the conventional wisdom: Hoover did nothing, allowed a bad situation to become worse, and generally ruined everything until Roosevelt saved us all. Here's the truth: Hoover was a proponent of government coordination and tried to get markets to freely institute many of the reforms Roosevelt later mandated. These reforms made a bad situation worse. Following the 1930 midterm election, the Democrat congress frightened Wall Street, which advanced during congressional recesses and retreated while Congress was in session. After his electoral defeat, Hoover appealed to Roosevelt to make calming statements, but Roosevelt instead preferred to take the oath of office amidst a massive bank failure so he could dramatically declare a "bank holiday." Roosevelt then proceeded to deepen and lengthen the Depression to an unbelievable extent. And for all this talk last week about "moral hazard," what can be more morally hazardous than inflating away the consequences of firms' decisions? Remember the beginning of Dr. Faustus, when he takes a couple scriptures, turns them on their collective ear, and then runs with it for five acts? It seems like the people behind this plan have done the same thing with the supposed Keynesian quote about the national debt being no big deal because we "owe it to ourselves." This argument was actually featured in a Beavis and Butthead episode once, sort of. They were selling candy for school (a hallmark of serious educational pursuits found in all good public schools, along with magazine sales and trips to amusement parks) and ended up just using the same dollar to buy candy back and forth from each other. They ate 60 candy bars and only turned in one dollar. It seems like Secretary Paulson also saw this episode, and he was taking notes.


Cristin said...

I'm also a little suspicious that the "Pass this or DIE" argument is politically motivated or just stupid. Do you really think the market is going to collapse? I doubt it.

Erik said...

If you owe money, you want inflation, and not deflation. Who is the world’s largest debtor? Who wants to continue to take the worlds largest debt to a new level that won't be seen again until who knows when?

I feel like, since there is no personal accountability in either business or congress, everyone in power chooses what ever will personally gain them the most, because they can continue to hide behind the masses. The government continues to borrow with no plan for repaying tomorrow. CEOs try to gain the largest reward with the least amount of work by taking on the riskiest investment gamble to hopefully keep their returns high and their stock holders happy. When they lose the bet, they should be correctly rewarded by going out of business.

Lets not let the Fed off the hook either, their tampering with the prime rate back in 2002-2003 made it so that anyone with money who wanted to keep up with inflation with a low risk T-bill or other US bonds couldn't even keep inflation covered, so they all bet on the other historical "sure fire" investment, the US mortgage backed securities. We need to grow up, stop borrowing, live below our means, and realize that the economy will continue to grow, just at a slower rate if credit and debt are reigned in. That's my rant for the night. It’s like a teenage who thinks that having 200 checks in their check book means they can write in what ever value they want.