Hold everything

Since March, the U.S. government has been selectively bailing out financial firms in order to calm the markets and prevent a financial meltdown.

Yet with every federal action, things get a little bit worse.

They are achieving the opposite of what they intended.

Why?

"Check your premises," Ayn Rand often said, because when you are on the wrong premise you will always achieve the opposite of what you intend.

Okay, let's check.

"Uncertainty and a lack of confidence have clogged our basic financial plumbing," Treasury Secretary Henry Paulson said Wednesday. "While our actions have been aimed at restoring financial markets and institutions, our purpose is to prevent financial market difficulties from further impacting businesses and families across the country."

So the premise is this: By intervening here and there, the federal government can maintain stability in the financial markets and the free flow of credit through the economy.

What if that's wrong?

What if the continuing possibility of government action, selective and unpredictable, is actually creating fear and uncertainty, freezing the credit markets?

Well, if that was the case, every government action to alleviate the crisis would gradually make things a little worse.

Today there are reports that the credit markets have not unfrozen in response to the latest global rate cuts, as they did not respond to the $700 billion bailout, or the bailout of AIG, or the takeover of Fannie Mae and Freddie Mac, or the various actions taken by the Federal Reserve.

Today there are reports that the U.S. Treasury is about to start "taking part ownership in a number of U.S. banks."

"One thing we must recognize," Secretary Paulson said Wednesday, "even with the new Treasury authorities, some financial institutions will fail. The EESA [Emergency Economic Stabilization Act] doesn't exist to save every financial institution for its own sake."

So some banks will be saved, and some will be allowed to fail.

But which are which?

Who knows?

How will the Treasury decide which banks to save?

Who knows?

If you do business with the wrong bank, do you risk unknown liquidity problems or total loss?

Who knows?

That's a lot of uncertainty the government has just created, and there's no end in sight. The Treasury Department is apparently taking it day by day, standing ready to wipe out selected investors with the stroke of a pen on an as-needed basis.

The more everybody panics and freezes, the more they'll do.

The more they do, the more everybody panics and freezes.

It doesn't help that the Bush administration has publicly issued dire and terrifying economic forecasts in order to get these bailout proposals through Congress. They have frightened Americans into panic-selling their investments and halting all spending. If the bailout is exactly the opposite of what's needed, the political tactics employed to pass the bailout are economic suicide.

America Wants To Know calls on House Republicans to come off the campaign trail and back to Washington. Stand in front of a microphone, educate the country about the devastating effects of socialism, and propose a coherent plan to restore regulation of the financial services industry without having the government take ownership of it.

If this train is on the wrong track, we'd better hit the brakes before we wake up in Zimbabwe.


Copyright 2008

Editor's note: You might be interested in the earlier post, "Another way to restore confidence."

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