Nathan Moore's Thoughts
Bob Corker Is Right on the Roots
Bob Corker has an opinion piece in The Tennessean today advocating that the government’s first priority should be addressing the systemic problems in the credit markets
Sadly, the legislation passed by Congress and signed by President Obama will spend nearly a trillion dollars (of borrowed money to be paid by future generations) but is not a response that will solve the issues that created our economic crisis — credit and housing.
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While certain parts of the market are beginning to show signs of thawing, until the government and/or the market finds a solution for the bad assets and loans on banks’ balance sheets, banks cannot resume the lending that will do more to restart the economy than the trillion dollar bill passed by Congress.
Indeed, the Obama administration has driven the cart well beyond the horse. Not only have we wasted money, but also time. In the recovery let’s make sure that stories like this
never again happen, but because market forces are again allowed to set lending standards, not because government is manning the bilge pumps.
February 23rd, 2009 at 1:14 pm
I am confounded as to why the GOP and the Dems refuse to allow our market system to work. Could it be that poll numbers are so important to them; especially the GOP, who will most certainly suffer if this all makes marginal gains?
OR, could it be that NO ONE is confident enough in the market economy to allow it to correct and flush out non viable entities that made poor choices and should die on the vine? In the Road to Serfdom, Hayek anticipated this result as a consequence of politicos.
Query: Might this stimulus bill be jumping the shark? I posit that it does. Without allowing this market to correct itself and using false supports to “stabilize” the credit markets and financial sector, this administration and congress have thrown gas on this fire. Rome is burning and DC is playing its fiddle…..
February 23rd, 2009 at 2:14 pm
Let’s take a three pronged approach to this stimulus package to evaluate whether it is the right thing to do.
First, the Democratic side. Ever since President Obama took office everyone has heard him say, “I inherited this problem. Etc.” The Democratically controlled congress has said the current financial crisis is the result of President Bush’s favorable treatment of Wall Street. Now, the Democrats believe that a bill in the form of “stimulating” spending will: 1.) Create Jobs, 2.) Ease the toxic assets off the balance sheets of the banks, and 3.) Get Americans spending again. So ends our trip to Disneyland. Do you bvelieve in Magic, too?
This naivete’will increase our deficit to some $1.6T over the next fiscal year. However, the powers that be, claim raising taxes on the Wealthy will reduce that number to $800B.
It goes without saying that jobs are being shed at a rate that pains the country. However, digging ditches in the morning and filling them in the afternoon does not really create JOBS. It creates busy work and adds nothing to our economy when the dollars used to pay that ditch digger come from the guy who could otherwise be paying him to work were it not for his tax burden.
Second, The GOP side of this. Don’t take the stimulus money since it comes with strings attached and those strings hamper our system of Federalism. Bail out Wall Street. Support the banks.
1.) Take the money but make an issue of the strings and bring up the Constitution. Madison had some things to say that are relevant to this matter.
2.) Let Wall Street fail. It will be painful. It will be scary. It will send panic throughout the world. And the sun will rise tomorrow and we will rebuild. Sometimes the best option is the one you don’t want to do. Medicine is not always the best tasting thing out there.
3.) Banks that made unwise choices should fail. Those banks that used TARP funds should be held accountable for how that money is used. If, as in the example of BoA, those funds were used to support the purchase of Toxic Assets from Lehman Brothers, then an accounting of those funds should be forthcoming and the bank should proffer reasons why it is not lending.
Thirdly, spending our way out of these consequences will not work. Tax cuts, credits, and deductions will get one so far. However, foreclosures are going to continue to happen. Such is the nature of contracts. Banks’ rights should not be abrogated because people cannot pay their note. When a willing buyer and a willing seller enter into an agreement, the US Government should not come back and say that no longer counts because the bank should not have made the loan. Judges should not be restructuring mortgages or setting the value of home prices. Not everyone needs to be a home owner. Not every American deserves his 40 acres and a mule. Allow the market to correct. Yes, it will drive up home inventory and depress values. But it will also correct to FMVs and allow the market to determine the prices.
Banks will lend when the market is ready. Let our system work.