Hats off to our Congress today for not letting our fears overcome our sensibilities. I want to refer back to the blog article from June 25, 2008 “Fear and Freedom” because if we’re not careful, we’ll let it happen again:
What will fear make you do?
If I can induce fear in you, I can get you to react;
If I can get you to react more, you will think less;
If I can get you to think less, then I can gain control of you;
If I can get more control of you, you become weaker;
If you become weaker, you look to me for protection;
If you look to me for protection, you will do what I tell you;
If you do what I tell you out of fear, you have lost your courage;
If you have lost your courage, you will lose your freedom.
Some in Congress and on Wall Street are continuing to try and scare the American people into a continuation of the largest government bailout in history. A full year of the “sky is falling” has already resulted in the government’s direct participation in propping up, buying and lending billions of dollars to private companies. Fannie Mae and Freddie Mac have been fully nationalized; FHA is lending billions in subprime mortgages as I write this.
The folks on TV are joining in the frenzy and the market makers on Wall Street are putting in their two cents with all of the major indexes.
A moment on these folks.
The people involved in Wall Street including the big TV names that make their living in the markets, or are friends of Wall Street, are no different than the investment bank traders who had to keep the mortgage frenzy going to keep dollars flowing in their pockets. They are no different than you and I, a slow-down, a down turn and their goes the groceries, and in their case, the big bonuses. Why wouldn’t they do everything they can to keep the money flowing even if takes trillions of dollars of taxpayer money to do it. To be honest many of the folks talking on TV just don’t have the knowledge or experience to know what they’re talking about and some of them are doing more harm than good with their less than expert opinions.
Don’t let them scare you.
The market hasn’t failed yet.
Better yet, let me give you the honest truth. We are in for a significant amount of pain whether we bloat the government and hand this money over for mismanagement, or not.
People are concerned that everyone will point to the economy three months from now if this doesn’t pass and say “I told you so, you should have listened”. Well guess what… it’s going to happen whether they do this or not, so fasten your seat belts.
This problem was 10 years in the making and it will not go away tomorrow no matter how many trillions of dollars we throw at it. The system has to undergo a complete deleveraging and recapitalization. Whether the taxpayer buys the bad assets, or the capital markets take the hit, it’s coming out.
This bailout is not the solution. As you can probably tell, the trillion or so of our money already spent wasn’t the solution either.
We need to get this right, and right means private markets take care of the private market problem. It’s time to slow down. This problem needs to be worked and worked hard with the right people for however long it takes.
We should demand an “economic crisis team” that consists of the best minds from industry and the universities and task them with a mission to develop a private market solution. If it takes 90 days so be it. Let the failures that would have been pushed into an uncertain future happen along the way. If the team decides a bridge loan is required the Fed can continue to pump out the support and bridge loans until we get there. China and everyone else can wait and if they don’t think we’re a good credit risk in the future, we’ll have to adjust.
I just read the draft bill which can be found here and it creates no fewer than five new governmental departments/positions/committees. It hands unprecedented and unwarranted powers to the Treasury and should not be allowed.
Credit is tighter and it’s going to get even more restrictive moving forward regardless of which way we turn.
We have experienced an extended period of excess credit availability. It has made it easier for people and companies alike to borrow money. As a result it has inflated everything. Too many houses, too many cars, too many businesses, too many jobs.
It has inflated the values of all assets.
If it’s easy to borrow money for cars; we produce a lot of them, their prices rise, jobs are created, and companies make more money.
The current, and soon even more restrictive credit (whether we hand the rest of the keys over to the government or not) is going to have the inverse effect; Fewer qualified borrowers, fewer cars sold, prices decline to meet demand, jobs are reduced and companies will make less money or go out of business.
We will recover and if we get it right, we will grow at a realistic pace that has a strong foundation.
It is a stark reality that we have to live with and either party will be able to say “I told you so”.
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