I've referenced the writings of John Tamny, editor of RealClearMarkets.com many times. His most recent column, "Once Again, Time Geithner Gets It Exactly Wrong," provides an outstanding example of why I regularly read Tamny's writings and why you folks should too.
Tamny starts off by addressing a pet peeve of mine - the fact that photo in time market snap shots aren't all they're cracked up to be. Specifically, Tamny addresses how the stock market has historically been prone to initially emit "false positives" in reaction to even the most idiotic and counterproductive government action based simply on herd mentality - the "relief" that some action is being taken... even when upon sober reexamination it's clear that the action taken was the wrong action.
Case in point... in Tamney's words...
The Dow Jones Industrial Average rallied 6 percent on Monday after the announcement of Treasury secretary Tim Geithner’s latest bank relief plan. The stock surge might point to significant positives within his initiative, but then going back to the fall, shares have regularly rallied on the news of government help, only to decline once the harsher realities of government aid set in.
Indeed, stocks rallied for weeks in 1971 after President Nixon announced the dollar’s de-link from gold, combined with price controls, but eventually markets caught up to the major economic negatives that would result from Nixon’s flawed attempts to revitalize the U.S. economy. It seems the same applies here.(*SHRUG*)
Yep. Bailouts. "Free" money. "Loans" that may or may not ever have to be repaid. Government pork directed towards... er... corporate welfare as well as expenditures directly solely for the... er... public good. On and on and on it goes; if you're incompetent, irresponsible, and have a certain "live for the day, don't worry about tomorrow" attitude... well... then there's a lot to love about Obamanomics and Geithnerian finance.
(*FROWN*)
Tamney's (and my!) problem with Geithnerian economics:
Geithner began by blaming Americans in total for the nation's economic difficulties. He wrote in the Wall Street Journal that, “as a nation we borrowed too much and let our financial system take on too much risk.” No, some Americans borrowed too much, and some banks acted in risky ways that were inimical to their health.
Geithner’s desire to foist collective guilt on all Americans in many ways strikes at the heart of our problems today. That's the case because in analyzing how we got here, we should make no mistake about the causes. This financial crisis we’re experiencing is a failure of collectivism rather than a failure of capitalism as so many assume.
Exactly! What we've seen "fail" isn't capitalism; what's failed - and was always destined to fail - is "proxy capitalism"... "crony capitalism"... a system where rational profit driven economic policies are often taken out of the control of owners, managers, and stockholders and instead come down from on high out of state capitals and Washington, where men like Chris Dodd, Charlie Rangel, and Barney Frank make the rules, placing ideology and partisan self interest above and beyond economic rationality, rewarding their loyalists and punishing their political enemies... all this while often enriching themselves and often their friends and family members. As to the rest of us...
(*SIGH*)
"Oops!" "Sorry about Freddie Mac..." "Oops!" "Sorry about Fannie Mae..." If that was all we could expect from the politicians who got us into this mess in the first place that would be bad enough - but as Tamny goes on to point out, Geithner (fully supported by Obama and the Democratic Party) has a new plan to... er... turn things around.
(*BESEECHING HEAVEN... MAKE IT STOP... MAKE THEM STOP*)
Tamney:
Within a capitalist system there would never have been the dollar debasement that drove the rush into property, but that was imposed on the American economy as a way of helping failing manufacturers. Similarly within a capitalist system, loans would have been issued solely based on the borrower’s presumed ability to pay them back. And banks would have lent with the certain knowledge that a failure to lend with profit in mind would be an economic decision that could result in bankruptcy.
But thanks to the collectivist thinking that got us here, government subsidy of the Fannie/Freddie variety made mortgages accessible to those who could not pay them, while some banks chased risky returns based on a belief that any failure would be backstopped by a political class that irrespective of party thinks home ownership is a public good that should be subsidized. The Constitution be damned.
And while Geithner argued in one sentence that “every policy we take be held to the most serious test,” he soon contradicted himself with his line about government initiatives meant “to stabilize the housing market by encouraging lower mortgage rates.” Simplified, lots of Americans bought houses they couldn’t afford and that are presently millstones around their necks, so now we’ll subsidize more of the bad choices that helped get us here.
Are you following, folks...???
(*SIGH*)
What remains to be explained is how government subsidies that create even greater incentives to consume property can help the economy. Indeed, with credit tight as is, will it be easier or harder for future Googles and Microsofts to sprout up if government intrusion in the marketplace means more capital will be shifted into the proverbial ground? More to the point, where are the Adam Smith disciples in politics or the commentariat who might innocently suggest that housing is the consumptive reward for productive economic activity, not the driver of same. Basically, Geithner gets what drives economies exactly backward.Hear, hear...!!! Bravo...!!! EXACTLY...!!!
Some say a better housing situation will aid the gasping banks, but the very assumption is contradictory in nature. It was the vibrant housing market that made banks comfortable lending to bad credit risks to begin with. That being the case, how will we improve the economy if banks repeat the very mistakes that have them on their backs? Wouldn’t the true economic boost result from banks learning the lessons of the past such that they make less in the way of home loans in the future? Geithner doesn’t seem to think so.
To help ailing financial institutions, Geithner noted that “we established a new capital program to provide banks with a safeguard against a deeper recession.” Translated, we’re going to prop up the banks that should have gone bankrupt, and in doing so, we’ll weaken the many responsible institutions that didn’t need government help, but that will have to compete against banks using money not their own.
Folks... ya can't make this stuff up... (And Tamny's not!!!)
(*SIGH*)
A real-world example of the faulty nature of the above was actually revealed in the Wall Street Journal just this week. AIG, now serving federal investors who want said investment to be profitable, is now undercutting its competitors with non-economic prices made economic by federal loans. In the future we should expect the same from the supposed beneficiaries of TARP, who will undercut their competition with full federal approval in the name of “getting taxpayers their money back.”
And with banks “still burdened by bad lending decisions”, Geithner, rather than let those same banks pay for their mistakes, is forming a “Public-Private Investment Program” that “will purchase real-estate related loans from banks.” The message here is for banks to lend in non-economic ways given the certainty that their mistakes will be absolved. The government response to today’s crisis is authoring future ones.
(*SIGH*)
I can't go on, folks. It's too damned depressing.
Bottom line... Tim Geithner is exactly wrong.
God help us...
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