Default Folklore

If you have a nose for political economy, hold it. The murky doubt swirling around the Great Bailout is congealing into a hasty pudding of conventional wisdom--at least for the boosters of TB2F (Too Big To Fail), TARP, Inflationism, Do Somethingism, and etc. And, as long as nobody on the other side of that strategic, shrapnel-filled, yet strangely silent bluff bothers to lay out a rigorous, up-to-date refutation, those Liquidity Trappist Monks can scrawl the official history of the Great Obsession of '08 unhindered for the unwashed.

The apparent shortage of focused 2010 exposés by free market scholars on the multifarious costs and suspect benefits of TARP has been nagging at me for weeks--ever since the TARPorrists began crowing over reports that the shape-shifting program is going to end up costing little more than a used biography of John Kenneth Galbraith. But, more on this later.

A colleague of mine recently asserted that, at the height of the Paternalistic Panic of '08 (the Patroniziclysm?), while some experts may have opposed TARP, even they agreed we would go over a cliff without it. I decided to do some digging on that one. Here are some arguments made at the time. You may judge whether my TARP-defending friend is correct:

• At 5:50 here Peter Schiff says what he thinks "no bailout" would mean.

• Here's Cato's Dan Mitchell defending us from Stephen Moore.

• And here's a nearly admirable piece by Geoff Colvin.

• Finally, there was this piece by Steve Chapman in the reason. Excerpts:

George Kaufman, a finance professor at Loyola University Chicago, is skeptical... He notes that aside from inter-bank lending, the credit markets were functioning tolerably well at the height of the crisis. Rates on 30-year mortgages actually dropped last week.

...A group of 122 economists, including at least two Nobel laureates, signed a letter this week summarizing the danger: "If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted."

(Here's that letter.)

(TARP wasn't even used for what it was sold as. So, it's not surprising if its consequences don't match predictions.)

With so many weaknesses in the rationale for gigantic governmental rescues of private enterprise, one might anticipate that true defenders of free economies (not mere upside allies) would produce a glut of full-throated criticism of what TARP began and ended as. But, and I hope this is due to my own shabby job of searching, I have so far found few articles that qualify.  If you know of any, please post a link in the comments [if comments are disabled, send me a Tweet].

12/20/10 UPDATE: Forgot something.  See my own 9/29/08 post here.  It quoted this very interesting 9/26/08 WaPo article, which begins:

Banks throughout the United States carried on with the business of making loans yesterday even as federal officials warned again that their industry is on the verge of collapse, suggesting that the overheated language on Capitol Hill may not reflect the reality on many Main Streets.

The industry is resilient despite the struggles of some members. Washington Mutual, a troubled Seattle savings and loan that was among the nation's largest mortgage lenders, yesterday was seized by the government and sold to J.P. Morgan Chase.

At the same time, many smaller banks said they were actually benefiting from the problems on Wall Street. Deposits are flowing in as customers flee riskier investments, and well-qualified borrowers are lining up for loans.

Geithner Asks Congress for Broad Power to Seize Firms

The headline says it all.

Here's the article.

Infinite Excuses, Finite Resources

It seems there is always some justification to be presented to we, the bankrupt citizen-shareholders in this grand enterprise.

For TARP it was "the far greater cost of doing nothing." Remember, anything other than massive forced indebtedness of citizens is "nothing."

For the bailout(s) of GM and Chrysler it was the "catastrophic" "ripple effects" of not confiscating people's money for the companies.

For the so-called stimulus package, it was the "consequences of inaction" (i.e., of not taking those hundreds of billions of dollars from wherever they were (or were not) and putting them where Congress and various other elected and non-elected officials decide to put it).

For various Federal Reserve acts of profligacy, which are difficult if not impossible to track or measure, it was variations on the same theme.

And now, for the $410 billion budget bill, it is "last year's business." (Is there an earmark for a time machine in there?) Yet, it represents "a clear win for Democrats..."

Generous above-inflation increases are spread throughout, including a $2.4 billion, 13 percent increase for the Agriculture Department and a 10 percent increase for the money-losing Amtrak passenger rail system.

No doubt life without the the next extended trip (Stimulus II?) into even deeper caverns of debt will be equally unthinkable to the Deciders.

Accidental Economic Editorializing

Some opinions are so ingrained in a subculture that that subculture is not even aware that they are not facts, but opinions. There are few if any more certain indicators of being out of touch with the intellectual climate than to not be aware that some visible and accomplished members of the population not only do not share this assumption of facthood, but are actually demonstrating superior situational awareness in contradicting it than are proponents of said opinions in espousing it.

That is the best I can do right now to summarize my thoughts a few hours after watching an astonishing episode of ABC's World News Tonight (12/16/08). The lead report, of course, begins with coverage of the Federal Reserve's historic interest rate action. The opinion-as-fact comes when the report segues to consumer credit:

"But, the economy won't improve until interest rates fall for consumers as well."

But, this is an opinion, not an established fact. Evidence here, here, here and heck, even here.

Comparing models

I'm fascinated by Peter Schiff lately. Jim Rogers too. Here is a great compilation of Peter on various business news shows. I wonder if those other guests would still yuk it up if they watched this. I would hope not, but they'd probably have some cya excuse for their uselessness.

There's Always ToBorrow

Plan A: make everyone buy bad loans
Plan A': make everyone forcibly buy part of the banks
Plan A'' [in development]: make everyone buy a new house
Plan B [in reserve]: make everyone buy a Hummer

Wouldn't anti-depressants be cheaper?

Citizens,

If we are to believe the timbre of the informational ether, we are at a crook in the mixed shit creek economy. There is, we are lectured, finally and unfortunately, no choice remaining. We must bail out...Congress. Also the Bush administration, the red and blue Presidential hopefuls, and the respectable media. The epochal legislation under consideration has simply been made to seem too important not to pass. Credit is obviously frozen because members of Congress and the mainstream Presidential candidates are getting nary a trickle. Furthermore, talking news heads and experts (and ex-experts) went balls out for the Wall Street welfare tsunami and, after being flabbergasted by popular opposition (which temporarily increased liquidity in some commentators' collective pants), find themselves in need of a rescue plan. Clearly, this cannot stand. Ladies and Gentlemen, it is impolite to point out that when the wisdom of the entire governing industry and its 24-hour PR wing proves to be of the sub-prime variety, the public personas of the pro-bailout, bi-partisan, bi-cameral Centristocracy must receive from their subjects the approbatory absolution that only a geyser of U.S. Mint ink can deliver. They are, you must understand, too big to fail.

Want to borrow some money?

You may not have to look far:

"Banks throughout the United States carried on with the business of making loans yesterday even as federal officials warned again that their industry is on the verge of collapse, suggesting that the overheated language on Capitol Hill may not reflect the reality on many Main Streets."

more...

btw, herez sum $ 4 ford, etc.

Oh, and, fyi, we're also bailing out some people who make cars. Don't worry, it's just $25 billion.

Con.sens.us

The vocabulary of the bailout is interesting and sad. I'd like to have a list of the words used to describe the supposed consequences of "doing nothing" (for only government action counts). Just tonight on ABC News I heard "abyss," "collapse," "catastrophe," and "we don't even want to think about it." (There's an intellectual approach.) Their reporters go on to say that a) we don't know whether the bailout will work and, strangely, b) there is a consensus that not passing a plan would be "far worse." Than what? Burning $700,000,000,000 in future taxes for nothing? I'm also curious to know how a consensus can exist when 160 or so economists, including three nobel-prize-winning ones signed a letter urging caution--at least with regard to Paulson's original proposal. Excerpt:

If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America's dynamic and innovative private capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted.

Some even question whether it's true that credit is frozen. (Listen to the news and you'll hear that claim repeated unquestioningly and frequently.)

VOCABULARY UPDATE: "...we do not want to live in a world that will exist without this rescue plan." -Art Hogan , Chief Investment Officer, Jefferies & Co., interviewed on ABC World News With Charles Gibson, 9/29/08

The McSky is Falling!

I thought I smelled something Filet-O-Fishy when I heard about this story on ABC News last night...

McDonald's Corp., the world's largest restaurant company, told some U.S. franchisees to seek other ways to finance store improvements after Bank of America Corp. declined to increase lending.

Store owners have exhausted financing used to pay for upgrades and equipment to make lattes and espressos, and Bank of America won't provide more money as it works on the planned purchase of Merrill Lynch & Co., McDonald's said in a memo that was obtained by Bloomberg News.

The boys on MSNBC/CNBC are using it as I type to impress upon the naughty populous that it had better get in line behind the Big Bailout or else!

Now the clarifications appear to be flying:

McDonald's said franchisees still have access to more than 50 national, regional and local lenders to provide financing.

"There are no credit issues at McDonald's," spokesman Walt Riker said in an email. "There continues to be more than sufficient liquidity available to our franchisees to fund capital improvements in their restaurants."

And, of course, since you need a new car to drive through the drive-thru, the same ABC News segment threw in a mention of the apparently increasing difficulty of borrowing (as opposed to saving up) money to buy a new car every couple of years.

But the biggest financing problem financing dealers face right now is one brought on by auto dealers and auto financing companies themselves, said Tawny Arnaud, vice president of sales for Galpin Motors, a chain of nine dealerships in the Los Angeles area.

Many customers who want to trade in vehicles today are still paying off extra-long loans they arranged on their last car purchase, he said. Loans of long as or six years have become commonplace in the industry.

Well, mercy!