Why the Aughts sucked

It was easier to find things to complain about during the decade just passed. In my piece for the Register wrap-up I focused on 9/11 and America's disastrous response, from the Truly Superfluous Agency TSA to limitation of civil liberties to the ill-conceived Iraq war. Moving right along, there was also the financial crisis, almost entirely -- not quite entirely but almost -- caused by government, which most Americans still blame on "unfettered" capitalism and lack of regulation of the most heavily regulated industry in the country. Trouble is the regulators were pressing banks to write unsound mortgages in the name of affordable housing. Thanks for the help!

And then there's the likely government takeover of health care. This is a strictly ideological cause -- there are problems but no crisis -- but "progressives" have been luisting after socialized medicine since the time of Teddy Roosevelt. In TR's day there was an excuse -- no outright socialist regimes had been established and it sounded good in theory. How anybody can still see anything lovely in socialism and statism after the experience of the 20th century is beyond me. But obviously, lots of people can.

Quote of the Day

"The financial crisis is not the crisis of capitalism. It is the crisis of a system that has distanced itself from the most fundamental values of capitalism, which betrayed the spirit of capitalism." -- French president Nicolas Sarkozy.

Tim Geithner: clueless bureaucrat

This reasonably lengthy profile from Portfolio, partly critical, partly sympathetic, is one of the best pieces I've seen on TreasSec Tim Geithner, who seems to have Obama's confidence but not much of anybody else's. The problem, as author Gary Weiss sees it, is that Geithner is a career bureaucrat, and although he is unbdoubtedly smart and certainly climbed through the bureaucratic ranks in impressive fashion, attracting mentors and suporters along the way. But he still has the instincts of a bureaucrat rather than a creative thinker or a leader -- conditioned by a system in which failure can be punished but success not so much, except by promotion, eventually to one's level of incompetence, where the way to survive is to keep your head down and avoid too much responsibility.

The problem is deeper than either Geithner or Weiss begins to grasp, of course. Unless you understand the importance of Federal Reserve open-handedness and political promotion of home-ownership to people who weren't financially or psychologically ready for it (dammit, there's no shame in being a renter), as Thomas Wood and John Taylor among others (Tom Sowell has a new book out I haven't read yet) do, you're not going to think in the kinds of terms that might actually lead to policies that would prevent a future crisis. The notion that government simply made a few mistakes around the edges and the real problem is private greed leads to more hair of the dog that bit you -- more bailouts and backstopping of too-big-to-fail institutions that should have been allowed to fail -- or go through Chapter 11 -- long ago. Such a policy is probably close to unthinkable in a Democratic administration anyway.

Bonus mess reflects poorly on all involved

It wasn't supposed to turn out that way, but the AIG bonus situation is turning out to taint everybody who even sticks his hand into the jar. Obama jumped in with pandering, but several observers are now saying that part of the fallout will include making things even more difficult than expected when it comes either to gettingn his budget passed or getting further stimulus packages approved. This Register editorial mentions a few who came off stinking like week-old fish, and how they deserved opprobrium.

It's still a bit mysterious to me why this particular set of bonuses, admittedly hardly typical corporate practice, set off such a firestorm. I suspect there's something kinda cumulative going on. People have been having second thoughts about the whole magilla -- bailouts, pork spending called stimulus, baigger spending yet, failure to get serious about the bank crisis -- and were just ready to explode in disapproval. Not that there's anything wrong with that.

Financial crisis goes global

Here's the Register's editorial on the now-global financial crisis. We argue that governments especially the U.S. government, have done too much already, and the G-7 leaders meeting this weekend would be well-advised to rub their chins thoughtfully and do nothing substantive. So far it looks as if that's just what they're doing.

I'm more convinced than ever that Paulsen and Bernanke aggravated the crisis by yelling that the sky was falling.

Thank you, Lew

Lew Rockwell at the Mises Institute put my piece on the financial crisis and the bailout from the Sunday Register on his LewRockwell.com Website today. I don't know how many hits it got -- they converted it to Rockwell style rather than linking to the Register site -- but Lew's site, of course, gets a lot more hits than either this blog or the Register, and I got a lot of nice e-mails from readers. Matt told me today that my article got an unusual number of hits, and at first I thought it was through Lew's site until I checked it out. It turns out most were through Google, but we don't know what people were looking for. Maybe it was the topic.

Here's Lew's piece on the House vote Monday, as well as pieces by Frank Shostak and Robert Murphy, as well as the Mises Bailout Reader, which includes a number of pieces on the Austrian business cycle theory, which sadly seems to have been validated once again.

Blowback from Main Street

One way or another, enough constituents got to enough C0ngresscritters to defeat the $700 billion bailout. It took most of the Beltway crowd by surprise. This piece by Steven Pearlstein of the WaPo, published this morning -- and especially the headline, "Dr. Paulson's Tough Medicine, In a Pill the Public Can Swallow -- exemplifies to me the rather complacent and self-satisfied approach of most Beltway commentators. It wouldn't have cost taxpayers anywhere near the advertised $700 billion, he assured us, because Treasury would be buying troubled mortgages and instruments that would turn out to have some value. The wise rulers in Washington were saving Wall Street from itself and saving Main Street, and Main Street shold be grateful.

Well, Main Street wasn't and isn't grateful. Most Americans still don't fully understand the extent to which this mess was made in Washjington, but they have an inkling, and they're a bit sick of having ever more of their money seized to fix messes created by politicians and their friends. Interestingly, Nina Easton at Fortune caught a bit of the anger in her piece.

The expectation is that they'll tweak it a bit and come back with something essentially similar. Instead, they should hit restart and understand that more government intervention is not the solution for a problem caused by too much government. They could start by repealing "fair-value accounting" or mark-to-market, which I discussed earlier. Then cut Fannie and Freddie into bitty pieces and sell them to the private sector in such a way that they get no access -- zero, zilch, nada -- to taxpayers' funds ever again. That's for starters.

Financial crisis a government failure

Here's a link to the piece I did for the Register Sunday Commentary section on the current financial crisis. I think I make a pretty good case that this crisis was made in Washington (though Wall Street has some culpability, of course). But the government created subprime mortgages and pressured banks and other institutions to offer more and more of them. Fannie Mae and Freddie Mac were near-perfect examples of moral hazard. Add the mark-to-market accounting rules that the government required, and you have something of a perfect storm. And of course, the government creates a huge crisis and uses it as justification to grabe even more money and power.

Incidentally, I didn't have room for it in this piece, but while I think John McCain was playing irresponsible faux-populist politics in calling for SEC Chairman Chris Cox's head (full disclosure; Chris was Newport Beach's Congressman for years, I've met him many times and like him) as what could only be seen as a symbolic gesture, I thought the SEC's outright ban on short selling was a big mistake

The economic mess

I haven't written much here about the current crisis in the financial industry, except to refer you to my piece in the Register week before last on Fannie and Freddie. But I have been paying more attention than I might have wanted to. I'm working on a piece for this Sunday's Register Commentary that will, I hope, explain how most of the crisis has a made-in-Washington rather than a "made on Wall Street" character -- not the result of a failure of the free market, but of too much government intervention into the free market. Meantime, here's a good piece that appeared on the Mises Institute Website with more specific numbers than I had on Fannie and Freddie. The WSJ editorial page has had some of the best commentary, from a piece by AEI's Peter Wallison, whome I interviewed, to several outlining the problems with make-to-market accounting, mandated by the government. Other good pieces here, here, and here.

Incidentally, as much as I think a $700 billion bailout is an extraordinarily bad idea, I'me afraid that we have the makings of a real crisis. The government is likely to make it worse.