The government wants to buy up all bad loans

The way the proposed bailout plan works is that the government would buy all of those bad mortgages held by banks and investors. Now the plan has already been expanded to allow the government to buy up all “troubled assets,” including student loans, car debt, and even credit card debt (not from consumers, of course, but from the banks that aren’t collecting what people owe them).

Think of that. The government would be assuming the banks’ risks and bad investments. In regular socialism, the government at least nationalizes productive industries. In this government takeover of capitalism, the government is nationalizing only bad assets.

Opposition to this plan is growing, especially among the general public, even though both presidential candidates essentially support it.

Bush’s administration as the most leftist in history?

More from George Will’s provocative column:

The political left always aims to expand the permeation of economic life by politics. Today, the efficient means to that end is government control of capital. So, is not McCain’s party now conducting the most leftist administration in American history? The New Deal never acted so precipitously on such a scale. Treasury Secretary Paulson, asked about conservative complaints that his rescue program amounts to socialism, said, essentially: This is not socialism, this is necessary. That non sequitur might be politically necessary, but remember that government control of capital is government control of capitalism. Does McCain have qualms about this, or only quarrels?

A penny for your thoughts

Special pennies will soon be issued featuring different scenes from the life of Abraham Lincoln. The occasion has sparked new calls for the coin to be eliminated. The things are worth hardly anything, goes the reasoning, and weigh down your pockets. Better to just round up or down to the nearest nickel, as is done in other countries. I utterly oppose eliminating the penny. It gives our transactions the virtue of precision. What do you think?

A new era of big government

Steven Pearlstein discusses the new takeover of the economy by the federal government, drawing the inevitable political conclusion:

It would be hard to find a superlative that would overstate how much the parameters and contours of American economic policy have been reshaped over the past two weeks.

The degree of government intervention into the workings of the private marketplace is unprecedented. Three giant financial institutions taken over. Government purchases of vast quantities of hard-to-sell assets from banks, investment banks and anyone else whose demise might threaten the financial system. Trading outlawed in an entire class of securities. A government guarantee extended to a whole new category of investments.

Laws have been stretched until they are barely recognizable. . . .

But in terms of the political economy, there is little doubt we are witnessing a once-in-a-generation sea change. It will no longer be an easy applause line for a politician to declare that government is the problem and that markets always know better than regulators and politicians. With Bear Stearns and AIG as their rallying cry, citizens will demand the same kind of financial security and protection as bondholders of big banks and counter-parties of hedge funds. Debates about the competitiveness of U.S. financial markets will focus less on how little regulated they are and more on how much protection and transparency they offer to investors. It will be harder to deny essential government agencies the talent, money and respect they need to do the job right.

An interesting comparison can be made between Hurricane Katrina and the current financial crisis, which symbolically has now stranded a number of rich investors on the roofs of their mansions, crying out to the government to be rescued.

When we look back, we may find that this crisis, like Katrina, was a turning point in public perceptions and expectations of government — about its competence in dealing with the inevitable crises that occur and its ability to take steps ahead of time to assure that the damage is limited and the most vulnerable are protected.

Uh, so we want the government that did such a good job handling Hurricane Katrina to handle the entire economic storm? That does not bode well. The point, though, is that big government is back in vogue.

The end of American capitalism?

So now the Federal Reserve joins with world banks to create a fund to bail out all the banks and the grateful stock market soars. But the German periodical Der Spiegel offers a sobering conclusion:

In fact, it really does look as if the foundations of US capitalism have shattered. Since 1864, American banking has been split into commercial banks and investment banks. But now that’s changing. Bear Stearns, Lehman Brothers, Merrill Lynch — overnight, some of the biggest names on Wall Street have disappeared into thin air. Goldman Sachs and Morgan Stanley are the only giants left standing. Despite tolerable quarterly results, even they have been hurt by mysterious slumps in prices and — at least in Morgan Stanley’s case — have prepared themselves for the end.

“Nothing will be like it was before,” said James Allroy, a broker who was brooding over his chai latte at a Starbucks on Wall Street. “The world as we know it is going down.” . . .

The only thing that is certain is that the era of the unbridled free-market economy in the US has passed — at least for now. The near nationalization of AIG, America’s largest insurance company, with an $85 billion cash infusion — a bill footed by taxpayers — was a staggering move. The sum is three times as high as the guarantee provided by the Federal Reserve when Bear Stearns was sold to JPMorgan Chase in March.

The most breathtaking aspect about this week’s crisis, though, is that the life raft — which Washington had only previously used to bail out the mortgage giants Fannie Mae and Freddie Mac — is being handed out by a government whose party usually fights against any form of government intervention. The policy is anchored in its party platform.

“I fear the government has passed the point of no return,” financial historian Ron Chernow told the New York Times. “We have the irony of a free-market administration doing things that the most liberal Democratic administration would never have been doing in its wildest dreams.”

Friends, this is President Bush doing this! The Republicans! The conservatives! Barack Obama isn’t president yet, but the current administration may be outdoing him. Or, looked at another way, if the Republicans are so little committed to free market capitalism, what will the Democrats do?

Meanwhile, there are signs that the free market actually is working as it’s supposed to. Now that the price of houses in California has plunged, ordinary people can afford to buy their own homes again, so the housing market is booming. Now that the stock market has plummeted, cagy investors such as Warren Buffett are buying up companies at bargain rates. The market destroys but it also builds out of the rubble.

Both Chairman Mao and Adam Smith are rolling in their graves

A state agency of Communist China may buy 49% of the running-dog capitalist investment firm Morgan Stanley!


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