I gave up, by conscious decision, being angry at the government about a decade ago. My liberal friends become outraged at the latest injustice (civil liberties, The Republican War on Science, crony capitalism), and my response is a yawn. Most of these things were either a direct problem a decade ago, or easily foreseeable as a logical consequence of government power. I got angry about it two decades ago, and realized there really isn't a lot of difference between the two parties. They have different rhetoric, but, at the end of the day, they both increase government power and help out their friends. Approximately ten years ago, I realized most people didn't care, and that things weren't going to change, so I decided that I could be really angry for the rest of my life, or just figure that things have been basically stumbling along in our modern system for about the last four score years, and hopefully they'd do so for the next.
And, probably, they will. But, the recent government response to the "economic crisis" has really raised my ire, again. To be clear: This bailout is no less the Republican party's fault than it is the Democrat's. It's Paulson's plan, but the Congressional Democrats think they're doing the Right Thing for the economy, and the country. Charles Schumer described Paulson's briefing as making him "gulp". Chris Dowd said this is "one of those rare moments [of] Democrats and Republicans deciding we need to work together quickly." My opinion has been for some time that "bipartisanship" is when both parties decide to work together to spend your money.
At best - if it does what the government plans - it will result in the government buying assets at more than anyone else is willing to pay for them. That's basically definitional - if someone else was willing to pay more, the companies involved would perform those transactions. The Treasury department is, of course, describing what they're willing to pay as "fair market prices", which Yves Smith very accurately describes as Orwellian double-speak for "above market prices".
As well, all the news stories desrcribing the "700 Billion Dollar Bailout" are wrong - we have no idea what this will cost. The Treasury Secretary and The Fed have the authority to purchase assets with up to $700 Billion. Imagine, though - as hard as this is to picture - that what they're talking about buying are banks with as-yet unknown liabilities. "Liabilities" here being accounting-speak for "money they are owed but may never get paid". The market says: "Firm X is owed $200B by borrowers of unknown quality. They also owe other firms $100B in other obligations. We have no idea what percentage of what they're owed they're going to get - so, we'll assume...say, 25%, and value the firm at -$50B, net of their obligations (i.e., they're bankrupt)." The government is going to say, "No, no, it must be worth more than that...we'll pay $50B." Then, it turns out that the market was right, and "asset" the government just paid $50B for is worth $50B in income, but owes $200B to others. If that "extra" $150B exceeds the $700B, do we have any reason to think that the Federal Government will simply default? Doubtless, if they did, the long-term cost to the credit of the nation would be higher than simply paying.
Of course, the old libertarian complaint that we're taxing "Grandma" to save the losses of a bunch of rich bankers is no longer true. In fact, progressives can't honestly make this complaint, anymore. The top earners underwrite most of the Federal budget. In effect, we're taxing rich non-bankers to pay rich bankers (and Grandma, via Social Security).
Perhaps, maybe, the silver lining is that leftish folks are starting to question whether giving government this kind of power is a good idea in the first place, since they always seem to need to use it. Matt Yglesias (a leftish blogger) notes:
It'd be one thing for a bunch of conservative politicians to ram a terrible policy through. Then we could say "well, if some progressives win the next election things will be different." But if this comes through an allegedly progressive congress then the whole enterprise starts looking pretty hollow.
Yeah, exactly, and that's why I've had a lot of trouble getting very exercised at the Bush administration: I've always known the Kerry administration would've been substantively just as bad. Tyler Cowen (a libertarianish economist) is even losing faith in the market:
[T]here are a number of enterprises -- not just Matt's -- which are looking pretty hollow these days. And I don't just mean banks. You can blame lots of the crisis on government -- more than most people think -- but at the end of the day it is hard to escape the conclusion that markets simply have performed horribly in a number of important regards.
I suppose that depends on what one wants of markets. Were the markets supposed to prevent bad outcomes? Or merely signal through prices that things were risky? It's very arguable that markets, in fact, priced the risk adequately. A handful of firms have had bad outcomes, but now the government is going to come in and buy the assets at their "fair market value".
This naturally leads us to "moral hazard" - that bankers make risky bets, knowing they get to keep the profits and government gets to keep the losses. The markets, I think, will accurately (over) value firms that have a now explicit government guarantee. The bankers, of course, are now incented to hold out for a better price from the government. That's their job. In theory, the government's job is to watch out for us. We all know that isn't going to happen, though. Since we know (from places like the USSR) that trying to make the bankers act in our interest doesn't work, the only alternative I see is to stop trusting the regulators.
But, we all know that isn't going to happen, either.