Governor Mark Sanford on 'The Savior Economy'

Governor Mark Sanford of South Carolina delivered a brilliant interview on the porkulus bill yesterday on CNN. You can see the video here . Sanford was blunt and honest in his assessment of the bailout legislation -- refreshing, and long overdue, candor from a Republican.

“We’re moving precipitously close to what I would call a savior-based economy,” Sanford declared in the interview. He was referring to third world and communist countries where businesses are forced to go hat in hand to the central government (the “savior”) for approval and for financing.

Watch the first of the segment carefully. The CNN moderator shamelessly sets several traps for Sanford. (The talking head John King even has charts of county-by-county unemployment in South Carolina. Wouldn’t it be nice to see CNN try that with a Democrat once every decade?)

But Sanford responded flawlessly to the questions. This is a forthright, insightful interview by Governor Sanford. It is about time someone in the Republican Party started telling it like it is. Thanks Governor.

businesses are forced to go hat in hand to the central government

The money center banks are insolvent, we have only three choices:

1) The government assumes ownership of assets which cannot be effectively valued or which are supposed to be valued at the moment far below their actual value. Banks stand or fall based on the remainder, with the government choosing and re-capitalizing the winners. The range of choices amounts essentially to the extent to which the taxpayers gain control of the assets they must acquire - that is, the extent to which it is possible that when the assets are re-privatized the taxpayers may recover at least some of the money spent to acquire them.

The situation to date is that the bankers have not gone to the government hat in hand, they've gone to the government gun in hand, put it to the taxpayers' heads, and demanded to be bailed out on terms advantageous to themselves and their shareholders, irrespective of efficiency or cost to the taxpayers.

Voters are rightfully furious about the way this process has been conducted to date (for example, the discovery that the government overpaid by around $$80 billion for the first batch of assets), and as they increasingly realize what is happening they are going to increasingly realize that the only way to protect their interests is to have the management of the money center banks working - for the duration of the workout - for the taxpayers, and to some extent the bondholders, rather than themselves and the shareholders.

Sorry, but there is just no other way for the taxpayers to avoid getting screwed - the interests of the taxpayers in this case are diametrically opposed to the interests of current management and shareholders.

2) The government and the banks collude to ignore the fact that the latter are insolvent. The most recent experience of this "solution" was Japan's "Lost Decade"

3) The money center banks are simply allowed to fail. No modern economy has ever attempted the "solution" - the result would be general economic collapse, and certainly on a scale substantially worse than any depression experienced to date.

We are not going to do 3), I hope we're not going to do to do 2), and it does not seem to me that Stanford has any practical suggestions for for improving how we do one 1).

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