The 21st-Century “New Deal”

September 25, 2008 in Business, Politics, Rants | 2 comments

Looks like the government is going to bailout Wall Street to the tune of $700 billion. To the chagrin of Treasury Secretary Paulson, Congress is injecting some prudence into the process by breaking payouts into installments. The WSJ explains that

“Treasury would have access to $250 billion immediately, with another $100 billion to follow if needed. Congress would be able to block the last installment through a vote if it was unhappy with the program.”

Paulson doesn’t agree with the government’s plan due to the potential to place conditions on executive pay in the affected companies. However, Paulson will likely have little say in the matter. I certainly wouldn’t grant him the blank check he was originally seeking! In fact, I wouldn’t grant him or Wall Street anything at all!!

What we’re seeing here is the beginning of a 21st-century “New Deal” and I believe this government bailout will turn what would probably be a short-term financial crisis into a prolonged economic recession. This bailout isn’t changing the policies that got us into this situation, it’s simply propping up a broken system just like we did in the 1930s.

This bailout is an attempt to keep prices up, but in reality, prices want to come down. The market needs to make a correction and this bailout is postponing it, but rest assured, there will be a correction. The question is do we pay the bill now, and relatively quickly, or later and over several years?

If housing prices fall, sure, folks who paid artificially-inflated prices will lose some, but lower income folks will then be able to afford a home. Eventually housing prices will reach an equilibrium. It’s basic supply and demand. Does no one in Washington understand how a market economy is supposed to work?

Don’t use my tax dollars to bailout Wall Street. Let those banks fail!

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  1. Richard’s avatar

    Richard on September 25, 2008 at 6:52 pm

    From what I’ve seen the major problem with the bailout is not the principle of the action but the method.
    Essentially, the incompetents in the White House are asking for $700 billion on a “trust me” with no legal limitations or controls or review over the spending of the money. Essentially, Paulsen has asked to be able to pay off the executives who screwed up and bail out the banks at the same time.
    Not exactly conservative politics.
    That said, I think something like this needs to happen. If the banks collapse, it will do massive economic damage across the world. In 1929, the banking system collapsed and shut down much of international trade, with successive knock-on effects. I do think there is legitimate criticism to be made of the FDR administration’s economic policies, and from what I’ve seen much of the New Deal damaged economic growth.
    If the banks fail, then British and other banks could go. This should be a part of a thorough going reform of the markets (regulation to prevent the likelihood of a similar crisis), not a bailout for bad managers.

    Richard,

    I have a serious problem with the bailout and don’t think this is the doomsday scenario the government and Wall Street are making it out to be. After all, qualified lending is up, so people are buying and small businesses are moving. If left alone, I believe there will be an economic downturn, but it would be of relatively short duration compared to the problems associated with the artificial price inflation associated with the bailout. Having said that, I agree that we should not turn over $700B without adequate oversight and control.

    - JOS

  2. Richard’s avatar

    Richard on September 30, 2008 at 11:52 am

    As recent comment above… I was wrong on the bailout. There are so many issues not addressed in the failed bill, not least the need to actually dismantle FM/FM.
    http://www.powerlineblog.com/archives2/2008/09/021644.php

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