Wednesday, October 15, 2008

A Temporary Measure?

President Bush and company claim that this program of buying equity in banks (in return for controlling how they compensate employees and heaven knows what else) is "Temporary".
President Bush on Tuesday announced a $250 billion plan by the government to directly buy shares in the nation's leading banks, saying the drastic steps were "not intended to take over the free market but to preserve it....

"We regret having to take these actions," Paulson said. "Today's actions are not what we ever wanted to do -- but today's actions are what we must do to restore confidence to our financial system."...

"Government owning a stake in any private U.S. company is objectionable to most Americans -- me included," he added. "Yet the alternative of leaving businesses and consumers without access to financing is totally unacceptable."

Said Bernanke: "We will not stand down until we have achieved our goals of repairing and reforming our financial system and thereby restoring prosperity to our economy."

The move, in effect a partial nationalization of the banking system, does put the United States in the awkward position of owning shares in institutions it also regulates. The shares purchased by the government are expected to be nonvoting ones.

"The government's role will be limited and temporary," Bush pledged. "These measures are not intended to take over the free market but to preserve it. He said these steps and other related actions echoed similar bold moves made overseas in an effort to prevent a global recession. Bush said that by restoring confidence in the system, the hope is to "return our economy back to the road of growth and prosperity."

Well, we all know what a temporary government program is. And how much trust can we really put in this government and Congress who have allowed us to get into this financial mess to begin with? The market on Tuesday didn't seem too impressed.

The truth is that the nationalization of banks and private companies has begun. They say it's temporary - but there is no guarantee or time limit placed on this move. They even tell us we could, as taxpayers, make money on this deal in the end. (wink, wink)

This was part of the plan (from CNN Money)
$700 billion: The Treasury Department, unveiling details of the $700 billion bailout plan approved earlier this month, said Tuesday it will pour $250 billion directly into the nation's banks in a dramatic move meant to stabilize the flailing financial system.

Nine of the largest banks have already agreed to participate. The program calls for the government to buy preferred shares in the banks, hold those shares until the market stabilizes and then sell them back to the banks. The program also limits executive pay.
They are pumping lots of liquidity into the markets, but we are still racking up debt. That is the heart of the problem. Until we stop accruing debt in order to consume we will remain in a very bad place. But they want us to continue borrowing money like mad and buying stuff.

Government spending, and the emptying of the treasury on this bailout on the scale that we are seeing is not a good thing. How can it be? We cannot borrow and spend our way out of this mess.
We are out of money folks.

The fact of the matter is that if the US government isn't tapped out now, it surely will be very very soon. Oh yeah, I forgot, they can just print up more money to cover it. (Wouldn't you like to have a printing press in your basement too?)

With change like this .... who needs Obama? Or maybe the Washington good 'ole boys are just setting the stage for the Socialist wonder. (You'll be lucky if you have any change at all!)

Expect hyperinflation to hit all of us, sometime next year.

I leave you with some worthwhile quotes from Dr. Milton Friedman:

"Concentrated power is not rendered harmless by the good intentions of those who create it."

"Nothing is so permanent as a temporary government program."

"The government solution to a problem is usually as bad as the problem."

Here is what the Doctor had to say:

Would somebody in Washington please listen already?

1 comment:

Henry Cate said...

I'm reminded of this story:

In the early 1860s when the Prussian (German) Prince Otto Edward Leopold Von Bismarck was the ambassador to the court of Czar Alexander II of Russia, he looked out of the palace window and saw a sentry stationed in the middle of the vast palace lawn. Bismarck asked Czar Alexander why the sentry had been stationed there, as there was no immediately apparent reason for the guard to be there.

The czar summoned his chief of staff to find out why. Like the czar, the chief of staff did not know the answer either, but he too noted that the sentry had been there as long as he or anyone else could remember. Upon hearing that bit of information, the commander general of the army was summoned. "Comrade General, why is that sentry stationed in that isolated spot in the center of the lawn?" asked the czar.

"Your Majesty, that sentry has been stationed there in accordance with ancient custom." Ambassador Bismarck then asked, "Interesting. How did that custom originate?"

"I have no idea, Your Majesty," the general said. "Then investigate it, General, and report your findings back to me!" the czar proclaimed. "It will be done, sire!" said the general as he turned and left the room.

The general's investigation took three days to complete. Upon completion it was discovered than the order to station the sentry on that spot had been issued 80 years earlier by none other than Catherine the Great. The records showed that early one spring morning in the year 1780, Catherine the Great of Russia was gazing upon the vast palace lawn. Her eyes caught site of the first fragile yellow daffodil of spring. Inspired by the beauty of this flower protruding through the frozen and snow-covered ground, she decreed, "Captain of the Guard, see to it that a sentry is posted to prevent anyone from picking that flower."

Eighty years later at the very spot where that small, fragile flower had once bloomed, a sentry was still standing guard.