Posted on 09/26/2008 8:29:29 PM PDT by SeekAndFind
“It's a terrible idea. It's undemocratic. It's bad economic policy, and it's bad social policy. And it has a very little chance of solving the problem in a meaningful way.” -- Allan Meltzer, Carnegie-Mellon University
Beware of politicians or business leaders who say, “I’m a firm believer in the free market, but…”
“But” thinkers have come out of the woodwork during this financial crisis: Conservative economist Bruce Bartlett proposes tax increases…..Patrick Byrne, the new CEO of the Milton and Rose Friedman Foundation who calls himself a “classical liberal,” demands that Congress impose a transactions tax on every stock market transaction to stem speculation. (This so-called “Tobin Tax,” named after Yale economist James Tobin, would reduce liquidity and make buying and selling stock more difficult.)
Then, of course, there’s Secretary Hank Paulson himself. A former CEO of Goldman Sachs, he professes to be a strong free-marketeer. "But we must act or face disaster," he warns. Then he proposes the largest power grab in history. Have you seen Section 8 of the bailout plan? It states: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."
If this stands, it is giving incredible and unprecedented dictatorial power to the Secretary of the Treasury.
Fortunately, there are a few sane voices out there. I was delighted to see that Allan Meltzer, a famous monetary expert from Carnegie-Mellon, lambasted the $700 billion bailout in a PBS interview yesterday.
Meltzer is writing a multi-volume history of the Federal Reserve. He drew upon his extensive background as a monetary historian to criticize Secretary Paulson’s handling of the credit crisis. “I've listened to governments tell me for 40 years that there was a crisis and the world was going to fall apart if we didn't do this or that,” he said. “But there have been a few cases where they weren't able to do that. One was the commercial paper crisis in 1970. There have been several others. The world did not fall apart.
Consider:
* Last week, we had Lehman Brothers went into bankruptcy. Within three days, most of the assets were sold.”
* AIG had three offers to buy the company before the government took over and offered a better deal.
* Merrill Lynch was sold to Bank of America when it ran into trouble.
* Last night it was announced that JP Morgan bought Washington Mutual’s deposits.
Meltzer concludes, “We need to get the government's hand out of this, and let's see whether we can't get a market solution.”
Given that monetarists often favor intervention during a crisis, it's great to see Meltzer taking a strong laissez faire stance.
Where's J. P. Morgan When We Need Him?
I too am a historian of finance, and one of my favorite stories is the Panic of 1907. It has some similarity to the current situation, because in 1907 there were some runs on the banks and the credit markets froze up. J. P. Morgan, the quasi central banker, invited all the major bankers in New York to his library, locked the doors, and said he wouldn't let anyone out until they had raised the funds to end the credit crunch. It worked.
Secretary Paulson and chairman Bernanke should do the same and not depend on Congress. They should invite all the major bankers to a meeting in New York, and raise capital to solve the liquidity crunch. They might invite Warren Buffett and Alan Greenspan to help out. Meltzer suggests the Treasury might help in lending funds if necessary: “If they're going to do something, then what they ought to do is make loans, which the financial institutions have to repay with interest. And if you think -- that's an idea which the Chileans have used in a bigger crisis than this for them in 1982, and it worked for them.” But it should not nationalize banks and mortgage companies, and get involved in the commercial banking business.
History is holding its breath. In the next couple of days, we will witness one of the greatest tests of American will, whether we will stand for economic freedom or doom ourselves to a new form of tyranny.
--------------------------------------------------------------------------------
Mr. Skousen is a financial economist, author and university professor. He has been the editor of the financial advice newsletter, Forecasts & Strategies, for 26 years. Two of his books highlight Milton Friedman's career: "The Making of Modern Economics" and "Vienna and Chicago, Friends or Foes?." Check out his latest book, "EconoPower: How a New Generation of Economists is Transforming the World." He is the producer of FreedomFest, the world's largest gathering of free minds, in Las Vegas every July.
Let’s take this step by step.
>> Bank of America and JP Morgan have to pay 8% and up, with the Fed funds rate at 2%.
BofA and JPM have to pay WHO 8% for WHAT?
>> Paulson and everyone else said they wanted congressional oversight from the start
I don’t understand. You say Paulson (and, by extension, you) want congressional oversight.
Well, they’re getting it. Right now. At the earliest stages of implementation.
But Paulson (and, by extension, you) are unhappy with that.
So — either Paulson (and, by extension, you) VALUE the opinion of Congress as overseers, and so are happy to let Congress deliberate on the bailout, and then oversee it.
Or — you DON’T value or want Congressional input, which takes us back to the “no review” clause. And that, despite your claims, makes Paulson (and, by extension, you) a liar.
Which is it?
Paulson (and, by extension, you) can’t have it both ways.
Great article. Thanks for posting.
>> All that matters is a sound policy, and yours is not sound.
No, I’m sorry, that’s not fact, that’s rhetoric. From Paulson (and by extension, from you).
Of course you and Paulson believe your policy is sound.
But I disagree. I, and a lot of others that are just as well informed as you (and by extension, Paulson).
>> Bond holders or preferred holders to borrow capital.
Very good. Now...
How much must BAC borrow?
From whom?
Why?
Paulson would rule as a monarch.
WaMu replaces CEO, agrees to pact with regulators
"The New York Times reported that Fishman will receive a $10 million signing bonus from WaMu, of which $2.5 million will be a stock award based on performance."
Friday, September 26, 2008
CEO of failed WaMu could get millions
"WASHINGTON: The CEO of failed Washington Mutual Inc., on the job only a few weeks before the largest U.S. thrift was seized by the government and sold to JPMorgan Chase & Co., is entitled to more than $13 million in severance and bonus pay."
How's that for 3 weeks on the Job? Sorry, but this make my blood boil - MHO.
Give it up. You are not profiting from this crisis. The TAXPAYERS ARE. If we have to take our economy down so you get the HINT, so be it. Go ahead and make our day. We hold ALL the cards.
NO BAILOUT!
>> 2 trillion all told and change
Huh? I’m looking at the BAC balance sheet right now. Where do you get that number, as being how much they need to borrow at 8% interest? I think you’re high by a factor of 3.
Correction: you’re off by a factor of FIVE. Or more. I’m being generous with 5.
>> More specifically - $1.55 trillion
I call bullshit.
Where did you get that number?
and AIG is now controlled by the Fed, no matter what.
if WB and NCC have runs by depositors the way Wamu did, they might not either (WB is apparently working on selling itself over the weekend in any event).
they were not taken over by JPM - they were taken over by the FDIC, who then sold certain assets and (mainly) liabilities to JPM. Wamu is still a publicly traded company, destined very soon for the pink sheets with a big Q on it. Wamu bondholders are not happy either.
“It isn’t just Wachovia. National City today, 60% yield. Morgan Stanley, despite a large recent capital infusion from Asia for stock, 40% yield. Bank bonds are simply now traded as junk for any institution with default risk, as being essentially uncovered, because the depositors are senior and the FDIC has shown the bondholders will get nothing, if it is necessary to protect the FDIC.”
How much of this do you think is encouraged/caused by run-ups in cdswap prices? As I understand it, an increase in swap prices (by traders who often (or usually) do not even own the contra instrument they are hedging) does have an impact on this.
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