My friend and congressman, Bill Sali, voted against the 700 billionout package, and I would like to spend just a few minutes telling you why I am glad about that. About a third of the Democrats voted against it, and about two thirds of the Republicans did, and a well done to the Republicans thus far.
The PR dunderhead who first floated this “rescue” package created the vivid impression that we were all going to drive down the highway of fiscal irresponsibility, throwing 700 billion pictures of George Washington out the windows of our monetarily loose caravan. To change the metaphor, the idea was created that this enormous bag of money was simply going to be handed over to a singing group called the Wall St. Wastrels. Kiss it bye-bye, everybody.
But what was “obviously” good for the country blew up in their faces. When they realized what they had done, PR-stupid-wise, creating as they did a nearly unanimous stream of hostile letters, emails and calls to congressional representatives, a new talking point were added later in the week. This new talking point was that previous bailouts (Chrysler, the S&L debacle, etc) had actually made money for the government. So this money is not being thrown away, but rather is a prime investment opportunity. Now this rationalization made sense on one level, but led to two new reasons to oppose the whole thing.
The reason it made a modicum of sense is this. When the government creates a day care center for the children of deaf alcoholics, the money simply disappears, seeya, and the number of children descended from deaf alcoholics mysteriously rises. Scholars in various think tanks, all of them scratching their chins, begin to study this strange phenomenon, and write learnedly about it. We may leave them to the pursuit of this conundrum.
But when the government buys mortgages that have a current market value of zero (because nobody will buy them as currently packaged), this is not to say that those mortgages have no actual long term value. Let me use some numbers at random just to illustrate the point. Once the government steps in and guarantees a purchase (say) at 60 cents on the dollar, this creates an opportunity for private buyers to come in with an offer of 62 cents. That is because this massive mound of mortgages has actual properties behind it all, likely worth more than 700 billion, at least up to a price of (say) 75 cents on the dollar. But if the government can make a profit on this turnaround, then private investors could do the same thing. Right? The government is only “necessary” as an after-the-hurricane-hit insurance company, willing to take a loss for the sake of market stability. If that is the case, then that American public that Congress has been hearing so much from doesn’t want them to do it. But if it is not an insurance deal, and the whole thing will turn somebody a tidy profit, then why does that somebody have to be the government? If someone is going to take a bath, why should it be the taxpayers? If somebody is going to make a profit, then why shouldn’t it be some enterprising fellow in the private sector? If someone is going to make a profit on all this, then it shouldn’t be the chief culprits in Congress and on Wall St. who created the whole mess in the first place. If Congress appropriates the bailout money, it keeps the chief scoundrels involved in the whole process up to their necks. All the regulators and regulatees over there are on a first name basis already. So cozy and convenient. So instead let’s let this whole thing fitz away from them, like an untied party balloon that someone let go, clean out of their reach. Let’s arrange this so that the insufferable Sen. Chris Dodd never sees another mortgage again. What do you say?
The second point is this. In the aftermath of its defeat in the House, the doom-saying moved on to a specification of the negative effects that Main Street would soon have experience — which, to this point, appears to be a severe tightening in the amount of available credit. But Americans were borrowing way too much anyway, and so perhaps this will be an enforced but nevertheless welcome respite. We are like a drunk who did the “drunk and disorderly thing” one too many times, and so the judge gave us 30 days, in which we can do a little involuntary drying out. Explain to me again why this is bad, exactly.
Sure, there will be some discomfort. Market corrections after irrational exuberance always bring discomfort. God gave us hangovers for a reason. Better hard adversity that is honest with you than loose prosperity that lies to you all the time. God is not mocked — a man reaps what he sows. General sentiment in Washington notwithstanding, this is not a bad thing.