Citibank gets bailed out

Citibank gets bailed out. I’ve been feeling bad about Citibank. I’ve felt guilty because my credit card balance with that company must be part of the debt that is dragging them under. Actually, I’ve been fantasizing that if Citibank goes under maybe there wouldn’t be anybody left to accept my payments and that somehow I wouldn’t have to make them anymore. If Citibank were to cease to exist, I figured that would amount to a bailout for me! Why wouldn’t that work?

Already socialist or just rent-seeking?

George F. Will says that what with all of our government subsidies, earmarks, social welfare programs, and other policies–including those supported by Republicans–we are already pretty much a socialist country. In his column, he makes some trenchant observations about where we are heading:

The distribution of a trillion dollars by a political institution — the federal government — will be nonpolitical? How could it be? Either markets allocate resources, or government — meaning politics — allocates them. Now that distrust of markets is high, Americans are supposed to believe that the institution they trust least — Congress — will pony up $1 trillion and then passively recede, never putting its 10 thumbs, like a manic Jack Horner, into the pie? Surely Congress will direct the executive branch to show compassion for this, that and the other industry. And it will mandate “socially responsible” spending — an infinitely elastic term — by the favored companies. . . .

Conservatives rightly think, or once did, that much, indeed most, government spreading of wealth is economically destructive and morally dubious — destructive because, by directing capital to suboptimum uses, it slows wealth creation; morally dubious because the wealth being spread belongs to those who created it, not government. But if conservatives call all such spreading by government “socialism,” that becomes a classification that no longer classifies: It includes almost everything, including the refundable tax credit on which McCain’s health-care plan depended.

Hyperbole is not harmless; careless language bewitches the speaker’s intelligence. And falsely shouting “socialism!” in a crowded theater such as Washington causes an epidemic of yawning. This is the only major industrial society that has never had a large socialist party ideologically, meaning candidly, committed to redistribution of wealth. This is partly because Americans are an aspirational, not an envious, people. It is also because the socialism we do have is the surreptitious socialism of the strong, e.g., sugar producers represented by their Washington hirelings.

In America, socialism is un-American. Instead, Americans merely do rent-seeking — bending government for the benefit of private factions. The difference is in degree, including the degree of candor. The rehabilitation of conservatism cannot begin until conservatives are candid about their complicity in what government has become.

OK, he concedes, we are not actually socialist. Just “rent-seeking.” That’s a useful term. But another name for it is corruption.

We need a recession

So says Charles Morris, who points out that the current palliatives are trying to get us back to what caused the problem in the first place; namely, too much lending and borrowing:

All these frenzied attempts at staving off recession seem to be aimed merely at jump-starting the consumer borrowing-spending binge that underpinned the ersatz growth of the 2000s. But the real need is to shift to a more balanced system that’s less addicted to high-leverage finance.

Pouring money from the Fed into the banks just delays the day when banks — and now we taxpayers — will have to tally up our losses. The Fed is exchanging Treasury bonds for bundles of subprime mortgages at 98 cents on the dollar. But in the real world, those bundles could barely fetch 30 to 50 cents on the dollar. Does the Fed seriously believe that subprime mortgages are going to recover their value? The Japanese tried papering over bad assets during their 1990s credit crunch, and their economy has barely budged in 20 years.

At the same time, Congress and Treasury Secretary Henry M. Paulson Jr. are insisting that banks increase lending. To whom? House prices are still falling at double-digit rates. Credit-card defaults are spiraling upward. Companies are weak. Banks know how fast their loans books are deteriorating, and they desperately need cash to build up their reserves against all the bad loans they’ve made. Forcing them to ratchet up lending now is just pushing them back into the quicksand they’re struggling to climb out of. It’s financial folly. It would also be political folly for the new Obama administration.

Morris says getting the economy back into shape will mean some version of what Paul Volcker did when he dealt with the Carter recession by jacking up interest rates, which wrung out inflation and set up the Reagan revolution.

Command economy & the auto industry bailout

As Charles Krauthammer explains, we really are talking about socialist, as opposed to free market, economics, a command economy run from the top by government dictate:

Saving Detroit means saving it from bankruptcy. As we have seen with the airlines, bankruptcy can allow operations to continue while helping to shed fatally unsupportable obligations. For Detroit, this means release from ruinous wage deals with their astronomical benefits (the hourly cost of a Big Three worker: $73; of an American worker for Toyota: $48), massive pension obligations and unworkable work rules such as “job banks,” a euphemism for paying vast numbers of employees not to work.

The point of the Democratic bailout is to protect the unions by preventing this kind of restructuring. Which will guarantee the continued failure of these companies, but now they will burn tens of billions of taxpayer dollars. It’s the ultimate in lemon socialism.

Democrats are suggesting, however, an even more ambitious reason to nationalize. Once the government owns Detroit, it can remake it. The euphemism here is “retool” Detroit to make cars for the coming green economy.

Liberals have always wanted the auto companies to produce the kind of cars they insist everyone should drive: small, light, green and cute. Now they will have the power to do it.

In World War II, government had the auto companies turning out tanks. Now they would be made to turn out hybrids. The difference is that, in the middle of a world war, tanks have a buyer. Will hybrids? One of the reasons Detroit is in such difficulty is that consumers have been resisting the smaller, less powerful, less safe cars forced on the industry by fuel-efficiency mandates. Now Detroit would be forced to make even more of them.

If you think we have economic troubles today, consider the effects of nationalizing an industry of this size, but now run by bureaucrats issuing production quotas to fit five-year plans to meet politically mandated fuel-efficiency standards — to lift us to the sunny uplands of the coming green utopia.

If the Democrats try to push the economy in this direction, it can only mean ruin. Republicans need only wait.

Bailout bait & switch

You know the $700 billion bailout that was passed to create a “Troubled Asset Recovery Program”? Well, Secretary of the Treasury Henry Paulson has decided not to buy troubled assets. Instead, he is buying bank stock. According to ABC,
“Paulson said today, he knew when the bill was signed the purchase of trouble assets wasn’t the right solution to the problem.” But. . .but. . .that’s not what he told Congress or the American people. Did we just give him a blank check with a $700 billion line of credit to do anything he wants to with it? We are also going to bail out the auto industry, people behind on their mortgages, and who knows where it will stop? If YOU want a bailout, here is a link to the proper form. (HT: ABC)

It seems to me that you can’t get out of an economic problem by just printing money and giving it away. Can you?

UPDATE: See this account of the bailout fiasco.

Why sell stocks now?

The stock market keeps dropping. I am far from an expert and no investor beyond my retirement accounts, but why sell stocks now? On paper, everyone’s holdings look bad, but that is only if you cash them out. You don’t lose money until you take the loss.

Hadn’t people might as well hold onto them, rather than sell them so cheaply? Then if and when the market recovers, the value will go up and they might be worth something. If people who are dumping stocks now try to get back into the stock market later, they will only spend more to do so. I realize that some people and institutions have to sell, needing the cash, but isn’t this a time to hunker down? Or, as Warren Buffet is doing, buy more stocks, seeing as how nearly all of America’s businesses are now on sale?

HT: The stock market