Thank You, House Republicans (Mark Levin)

I have read the posts here and elsewhere. Sometimes these things are made to look more complicated than they really are. From an economic perspective, if the problem is liquidity and credit, there simply is no need for the federal government to assume massive amounts of debt on its book by assuming loans in anticipation that their holders or borrowers will default. This seems to me like a brand new expanse of government power that is not justified (if it ever is) by the arguments made on its behalf. The government controls monetary policy through supply and interest rates, among other things. It can further ease money supply and credit, thereby increasing the flow of capital. The government controls tax policy. It can increase liquidity and the flow of new money into the economy both from within the country and from foreign sources by eliminating the corporate income tax and the capital gains tax even on a mid-term basis. No matter what is done, some financial institutions will fail, as they did in the 1981-82 recession and have since. And the Fed and Treasury and other instrumentalities of government will have to determine, on a case-by-case basis, whether to intervene and how to intervene. They will also have to determine whether other policies require modifying, such as the McCain proposal today, in which he suggests increasing federal insurance for individual depositors from $100,000 to $250,000. Other smart suggestions include modifying the mark-to-market rule requiring financial institutions to downgrade the valuation of assets. If the goal is to prevent panic in the economy by investors and depositors, then increase credit, liquidity, and the flow of capital, and deal with problem institutions that are significant enough in size that their demise could resonate to the wider economy. But the Soviet-style, top-down five year plan a la Paulson's proposal, and to a significant extent the proposal that was voted down yesterday, could easily do more damage to both the economy and our governmental structure. So, in this respect, I must depart from NRO's editorial.

Also, count me among those few here who want to thank the House Republicans for taking a bold stand against what had been a stampede on a scale I have never before witnessed on matters of huge consequence. Conservatism is more than a quaint belief-system to be embraced and debated over donuts at Starbucks. It is more than a list of talking points. It is the foundation of the civil society. The liberal uses crises, real or manufactured, to expand the power of government at the expense of the individual and private property. He has spent, in earnest, 70 years evading the Constitution's limits on governmental power. If conservatives don't stand up to this, who will? If they don't offer serious alternatives that address the current circumstances AND defend the founding principles, who will? The House Republicans have done both. And I, for one, thank them.

Incidentally, if you want to buy a home or car today you can. And if your credit is decent, you can get loans at a good rate. Last week we were told that if a deal was not struck by last Friday, our economy would collapse. It has not. That is not to say the evidence of economic troubles or worse should be ignored. It is to say that now is a time for reasoned decisions based on tried and true principles, not for abandoning them. I notice that the socialist, who, for the last 30 years, has insisted that private institutions make risky loans based on non-economic factors, still has not abandoned his policies. Socialism does not work. We shouldn't support more of it.

Our work isn't done. Yesterday, Ben Bernanke proved that the Paulson $700 billion plan won't work. He pumped $630 bn into the markets and the credit market did nothing. Oh wait, it did do something, it got worse. How can that be?!?! The plan won't work, simple. Congress is going back to the drawing board. Here are some facts put together by Karl Denninger.

Mathematics FAIL Paulson / Bernanke Bailout Plan

Known Facts

United States non-financial private debt is $32.4 trillion dollars and household debt is $10.0 trillion as of 2Q 2008.1 This encompasses mortgages, auto loans, credit cards, HELOCs, commercial and industrial loans, LBO monies outstanding and all other forms of non-financial (e.g. not including margin loans and similar) debt.

Henry Paulson and Ben Bernanke have asked for a $700 billion “revolving credit line” with which to buy “troubled” assets. Congress is strongly considering giving it to Mr. Paulson with some set of conditions.

The assertion has been made by both Mr. Paulson and Mr. Bernanke that absent this credit line and absorption of these “troubled” assets, the financial markets will imminently seize and fail.

The assertion has been made that the taxpayer will not recognize large losses and might make a profit.

House prices are projected to fall by another 15-30% nationally (depending on who you ask); therefore, whatever level of stress exists in the system today far more will exist over the next few years.

Mathematics

$700 billion dollars is 2.16% of all non-financial private debt and 7% of all household debt.

Provision of this credit line therefore would allow removal of a maximum of just over 2% of the current nonfinancial private debt from the banking system, assuming only US domiciled debt is included.

If the imminent failure of the United States financial system is going to be averted by 2.16% (maximum) of the outstanding private non-financial debt being removed from the banks’ hands and transferred to the taxpayer as the “responsible party”, then the system is under leverage of 46.29:1.

If, as many have projected, the actual losses to be sustained are $2.5-3 trillion in residential housing and a like amount among commercial real estate, credit cards and LBO loans, then the aggregate requirement is not $700 billion – it is in the neighborhood of five to nine times what has been requested.

If this is the case the aggregate requirement is double the US Federal Budget. The government cannot raise that amount.

Conclusions

Either (1) the system is not about to fail imminently OR (2) it will fail irrespective of whether this bill passes, as the actual amount required to “resolve” the problem exceeds the government’s ability to finance it.

If no failure is imminent then we are giving $700 billion to the people who caused the mess for no purpose other than enriching them.

If the latter then we need the $700 billion for social programs and other spending that will become necessary as we work through a financial collapse and crisis worse than anything since the 1930s.

EITHER WAY THIS BILL IS UNSUPPORTABLE IN ANY FORM; THE MATH DOES NOT LIE. ARE YOU PREPARED FOR A FULL PAGE AD IN USA TODAY AND/OR THE WALL STREET JOURNAL LISTING THOSE WHO CAN’T DO BASIC MATH?

1 http://www.federalreserve.gov/releases/z1/Current/z1r-1.pdf

Mark;

I guess the best way I could explain my position is this:
To “shore up” an economy with an influx of government capital IS socialism, plain and simple.. (free market concept).

To regulate a financial system to where a market is not dominated by a consortium or manipulated by it's corporate officers (”book cooking”) is not, (allowing more business expansion).

This seems to all have started to where FANNIE MAY and MAC had dictated to them that they were to disregard financial solvency and eliminate the conception of “red lining”.

Let the market adjust, and the stock holders file a class action suit against the board members and officers of MAE and MAC.

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