Financial crisis: America's bailout will magnify the economic damage

Telegraph U.K. ^ | Oct 7, 2008 | Daniel J. Mitchell

[fightinJAG]

Congress's bailout of the American financial system is a misguided scheme that will hurt the economy by delaying the economy's adjustment to a government-created housing bubble.

Proponents of the bailout argued that it was a necessary short-term step to prop up the stock market and increase the flow of credit. Yet the stock market dropped several hundred points when the bailout was approved last week and the situation has deteriorated even further this week.

Credit markets also have been less than enthusiastic about the bailout, in part because some tightening of lending standards is a good thing and also because the bailout has now made it more difficult to ascertain the real value of financial assets.

While the short-run impact of the bailout is negative, the long-run effect will be even worse. The bailout rewards executives and companies that took imprudent risks, undermining the discipline of the marketplace.

And by socialising losses, it will encourage similarly reckless choices in the future. Moreover, the bailout will give the government more power over the allocation of capital, a policy that surely will undermine economic efficiency. Last but not least, the creation of a no-strings $700 billion slush fund will increase corruption in Washington.

[Canedawg]

Congress demonstrated for the most part that they are politically tone-deaf. Maybe they should have read Free Republic before they voted.

McCain was no maverick when it came to voting for the bailout, either. But, you make your bed, and then you have to sleep in it.

[norraad]

Don't forget all the car dealerships in America, they're now playing little Oliver,

"please sir, can I have some more".

They've long been leveraged out the woozoo and that's coming home to roast (spelling tongue in cheek).

[Brian S. Fitzgerald]

The economy is a moving target, and unforseen conditions in week or a month will render the plan useless, IMO.

[CarryingOn]

That about nails it.

[aft_lizard]

Used cars are popping up like weeds here in Phoenix. Of course that could be because all of the illegals being chased out.

[alloysteel]

All this “bail-out” did, in the end, was to briefly reinflate a leaking bubble, and kick the can down the road for what is at most only a few more months.

Then the real chore of demolition will still have to take place. And you thought the city of New Orleans had a tough time cleaning up after Katrina.

Which brings up the question - why are we still putzing around with New Orleans three years later? Dredge out Lake Pontchartrain, dump the spoil on every part of New Orleans that is below the ambient level of the river, and plant live oak trees, creating a new forest.

Then leave it alone for a couple centuries.

[hinckley buzzard]

the bailout will give the government more power over the allocation of capital, a policy that surely will undermine economic efficiency. Last but not least, the creation of a no-strings $700 billion slush fund will increase corruption in Washington

Bingo. Inefficiency and corruption. The socialist dream in a nutshell.

[upchuck]

I’m sure the millions of Americans that have seen their 401(k)s devastated in the past week due to the frigging idiot RATS will readily agree.

[who_would_fardels_bear]

"Dredge out Lake Pontchartrain, dump the spoil on every part of New Orleans that is below the ambient level of the river, and plant live oak trees, creating a new forest."

Replace 'Lake Pontchartrain' with 'the Potomac River' and 'New Orleans' with 'Washington D. C.' in the previous sentence and now you're talkin' 'bout a plan!

[Mogollon]

Slump in the market could be because Obambi is ahead in the polls. The stock market could not survive an obama presidency.