Is Wall Street welfare a good idea?
By bnitz on Sep 24, 2008
A few aspects of U.S. life make it onto CNN, google news or other worldwide news services, but sometimes I miss the sensible realities I only get from talking to people there. Some friends and family advocate the small government conservatism which seems to have fallen out of fashion with the Republican party. Others support progressive environmental and humane health policies. A handful of friends almost fit into the R and D stereotypes which fit neatly into blue-state red-state dichotomy which makes for colorful TV graphics. But I haven't yet met anyone who thinks using $700 billion of taxpayer money to bail out bad Wall street bets is a good idea. Why is Congress even considering going against the wishes of nearly all of their constituents and following the singular advice of treasury secretary Paulson, who along with Bernanke, Greenspan an other so-called experts obviously misjudged the way a free market economy should work? Time and time again I hear these powerful men speak as though the core problem is that house prices are falling. They are completely oblivious to the fact that these prices rose too high in the first place, a problem that the Paulson bailout prolongs by using tax money to play "stupid buyer" and purchase assets for far more than their fair market value.
While discussing the U.S. government's relatively harmless economic meddling (Cheese subsidies) during the Reagan/GHW Bush years, a friend suggested that the government should buy computer chips and bury them in order to prop up the falling domestic chip market. Since then, inexpensive imported chips led to the personal PC market, the cell phone market, the video game market, the associated software markets and the internet economy. None of this might have happened if the government had imposed tariffs or burned chips in order to prop up that part of the economy. A few years later, this Bush administration tried and failed to meddle with WTO-defying steel tariffs which theoretically might have saved a handful of steelworker jobs while irritating the US's staunchest allies and endangering hundreds of thousands of domestic auto industry jobs.
Now Congress is trying to reinflate an asset bubble which desperately needs to deflate. Taxpayers may soon own a million foreclosed homes which were priced far beyond local wages in water depleted deserts and hurricane-prone lowlands. There is an old saying which goes back to the 1925 Florida property bust, "How would you like to buy some swampland in Florida?" If "heads gamblers win, tails taxpayers lose" is the new economic paradigm, why not put taxpayers on the hook for $700 billion dollars worth of tulips or dot coms while you're at it and re inflate those bubbles? Are any IT companies in the magical "Too big to fail" category? Many well known IT companies have a market cap and asset/debt ratios far better than Fannie Mae or Freddie Mac.
Why is it that what seems so obvious to the person-on-the-street, "governments shouldn't pick economic winners and losers", is being debated in Congress? We've learned this lesson before, the people of the former U.S.S.R. learned it. A forced market economy doesn't work and it never will.
...And the failure hands over the State like a great sorrow. The works of the roots of the vines, of the trees, must be destroyed to keep up the price, and this is the saddest, bitterest thing of all. Carloads of oranges dumped on the ground. The people came for miles to take the fruit, but this could not be. How would they buy oranges at twenty cents a dozen if they could drive out and pick them up? And men with hoses squirt kerosene on the oranges, and they are angry at the crime, angry at the people who have come to take the fruit. A million people hungry, needing the fruit—and kerosene spayed over the golden mountains.- From "The Grapes of Wrath", John Steinbeck 1939
If the taxpayers are forced to own millions of overpriced vacant foreclosed homes, won't there be a temptation for the government to destroy these homes in another misguided attempt to prop up a single favored industry. That's my $.02, ymmv, this is simply the opinion of a single disappointed voter and is not intended to represent Sun Microsystems or anyone else.