When both the markets and the economy went into collapse mode last fall, recall how Treasury Secretary Henry Paulson and Fed Chairman Ben Bernanke, among others, understandably justified the financial industry rescue.
They kept saying how some banking, investing and mortgage institutions were too large to let fail -- that if any one of them went under, they could bring down the entire industry and probably the economy as well.
Truth be known, the feared financial meltdown was like global warming: You weren't sure whether the dire warning were true, but it was too scary not to try to prevent.
In short, something had to be done.
But with the benefit of hindsight, it's instructive to now ask: Why did anything have to be done in the first place?
In other words, how do things get so big that we can't allow them to fail?
As a new administration prepares to take office, one wonders how to restore confidence in a regulatory regime that has failed the nation so badly. The answer, of course, isn't more regulations -- it's better regulations. Under some conditions, that could even mean fewer regulations.
For instance, we don't need more regulations in hopes of keeping huge institutions in line so their collapse won't threaten to bring down an entire industry and damage the economy, thereby necessitating more mega-billion dollar bailouts.
Rather, no private institution or corporation should ever be allowed to grow so huge that the rest of society can't afford to let it fail!
That doesn't require more regulations; it requires commonsense application of antitrust laws. Break up the entities before they grow "too large to fail."
This means putting a few reins on the "merger mania" that lets a handful of institutions swallow up a lot of smaller ones until they become too big, or too interconnected, to fail. The proper role of government isn't just to write rules and regulations, but to create a climate of fair and energetic competition that benefits both commerce and consumers.
Congress is doing exactly the wrong thing by trying to save Fannie Mae and Freddie Mac, the giant quasi-government institutions that contributed so mightily to the subprime mortgage catastrophe that triggered the ongoing economic turmoil. Those are the kind of institutions that the government should be breaking up and selling off -- not keeping afloat until the day comes again when they'll almost surely need another humongous taxpayer bailout.
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Had the government not interfered with free market in such a manner, the companies wouldn't have been too big to fail, nor would they have been in a position to fail. The CRA tried to force bad loans, but when it didn't succeed, the Freddie Mac and Fannie Mae (government companies) seduced the bad loans with 100%, no questions asked, guarantees. After 20 years of packaging and reselling the bad loans as viable commodities, the collapse was set. All that was needed to topple the whole scam was a little light shining on it. Government has a role in the free market and it's consumer protection. Leveling the playing field needs to be left to competition.
How do things get so big? When our Treasury and Federal Reserve try and cover up hundreds of trillions of dollars of fraudulently created mortgage-backed securities that NO ONE can figure out how to value.
You ain't see big yet. Wait until this is all over and one bank/Wall St firm sends you a monthly check of what they think you need to survive on.
Not only that, Riverman, but you'll also be taxed out of that check to reimburse our gubment for its bailout(s) for that firm!
I think it all started with our trying to fund every natural disaster that came along. I remember as a kid, that no one lived close to the river because they knew if they built there, that a flood would destroy them. In fact the only thing close to a river was farm land. Then we started to pay families for damages that flooding caused. Now we are so used to the government bailing out idiots that we feel they are responsible for every thing. That was back in the days when the small amount of people on welfare didn't get stamps, rather they got milk, flour, cheese and canned lunch meat. Then a Harvard Graduate determined it would be cheaper to give them money (yeah) for the short period of time they would be on welfare. Well you can see what that led to. And here we are today, all of us with our hands out. Oh I know some of you disagree and say you contribute things, but ultimately, you take your contributions directly off your taxes and that is called getting something for basically nothing.
Dissman, I'm not sure I got that. Because we get a tax deduction of some kind on money we make, we are getting a handout?
Key words are FREE markets and PRIVATE industry. We don't need government owned, supported and/or regulated transportation, financial, manufacturing or industrial businesses. Let's leave that for other countries and keep Aerica FREE! We worry too much about separation of church and state and not enough about separation of government and private business. Personally I would like to separate my hard earned money from a government who likes to pass it to people/businesses that fail!