Rossputin.com Rational Thinking About Our World

For about 48 hours, I found myself grudgingly supporting the Paulson bailout plan. I admit it: For those 48 hours, I was a moron, or at least very naive.

I believed the problem was so obviously serious that even Barney Frank, Chris Dodd, and Chuckie Schumer would have to put through a streamlined piece of legislation without larding it up with Democrat goodies and class warfare. That was naive of me.

Also, separately from my naiveté, I did not realize until 48 hours after the report of the bailout plan that its initial legislative proposal to Congress included the following outrageous power grab: "Decisions by the Secretary pursuant to the authority of this Act are non-reviewable and committed to agency discretion, and may not be reviewed by any court of law or any administrative agency."

I can't stand Congress and I don't trust them as far as I can throw them, but there simply must be Congressional oversight over a sum of money this large being involved in the heart of our economy. On the other hand, I'm certain that oversight simply means the Democrats will use the powers taken by the government in the bailout to increase the reach of the dead hand of government into the board rooms and wallets of American corporations and workers.

Either way, American taxpayers lose. The economic liberty of Americans is eroded. The bully pulpit that America has to encourage foreign governments to extricate themselves from state-run economies is diminished.

Bernanke is warning us that doing nothing poses serious risks to the economy. Indeed, I believe that's true. But doing this bailout and doing nothing can't be our only two choices. And even if they were, it's becoming clear to be that in the long run it's better to have a recession now and a free-market capitalist system later than to attempt (without any guarantee of success) to avert a recession now at the cost of having my children grow up in an economy which will be indistinguishable from that of the countries of Europe which so many of us free-market types have pilloried over the years.

I don't want our free-market system to be like a patient who goes into the hospital with a painful but probably not fatal problem and who comes out without pain because he's been given a deadly or at least permanently debilitating treatment.

Another thing which solidified my opposition to the current plan was hearing an interview on NPR in which a woman said that the current situation proved to her that capitalism does not work. Just as we can't elect big-spending Republicans because then Republicans will come to believe that's what Americans want and that's what works best, we can't let government do something which will for years to come give ammunition to all the nation's and world's enemies of free markets. Whether it's Nancy Pelosi or Hugo Chavez, we have to show them that markets do indeed correct themselves and teach participants valuable lessons, which then lead to a more prosperous future.

Once we let the average American believe that capitalism is inherently flawed, we are doomed to a repeat of what we are going through now. Don't forget, what we have now is not a failure of capitalism and free markets. It's a failure caused by the power of government forcing market participants to do things they had never done before, namely loan money to people they knew were not qualified for those loans.

I am quite upset for myself for thinking for a moment that a major intrusion by government into financial markets could be worth its long-run costs...not primarily financial costs, by the way, but costs to our economic liberty and the massive corruption which such involvement must inevitably bring to government. This plan would make the outright corruption we've seen in recent years, as well as the more subtle corruption of Chris Dodd and Barney Frank in creating this crisis, look like small potatoes.

So, I apologize to anyone who might have heard me on the radio supporting the bailout plan, even though that support was tentative. I don't think I aggressively supported it on these pages, in large part because I was never convinced it was a good idea. Now I'm convinced it's not. I was a moron for believing even for a moment that the plan was a good idea which could be implemented without both short- and long-term damage to our government and our financial system.

It looks like I have growing company in opposition to the plan (and I am, sad to say, a bit late to this party for reasons explained above)...company which is much smarter than I am. Not only are members of Congress (of both parties, but Republicans for better reasons) standing up against the plan, but there is also this sizable and growing group of economists opposing the bailout:
http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm