Tuesday, 7 October 2008

'The Bailout of Abominations'

Commenting on the bailout (which, as David Friedman - who addresses the society on 24th October - points out, nobody seems to be holding responsible for the collapse in stock prices after its passage), the excellent Robert Higgs remarks:
Forgive me if I read this to mean that under the TARP, the secretary may buy any financial asset whatsoever, regardless of whether it is a mortgage or a mortgage-related security, as signified by the words “any other financial instrument.” And he may purchase the asset from any financial firm operating in the United States....

Even if Paulson unexpectedly turns out to be as pure as driven snow, the amount of confusion that he has been empowered to inject into the world’s financial markets defies comprehension. With $700 billion to throw here, there, and everywhere, for good reason or no reason, with no real accountability and no bottom line―if he can’t make himself the God of Chaos by exercising these powers, then nobody on this planet can create chaos. The potential for malinvestments, general misallocation of resources, and sheer financial tomfoolery confounds the mind. Not even the Archangel Gabriel deserves to have so much power placed at his disposal.
This is what was missing in the capitulation of the House Republicans after their initial opposition: thorough skepticism of a governmental solution, especially 'emergency' action taken during a crisis. Anybody even passingly familiar with the historical correlation between crisis and government growth - the subject of Higgs' first book, Crisis and Leviathan - would immediately recognise the current episode as a perfect example of such a period, and accordingly be ever more vigilant against intervention. Instead, falling for the 'Something must be done; this is something; therefore this must be done' line of Hank Paulson, massive new powers have been transferred to the executive branch with almost no oversight.

Read the full post at the Independent Institute.

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