Politics: October 2008 Archives

Did you know you can have over 100 tabs open in Firefox at once? When that happens, it's time to dump the links, topically if possible. Below you'll find links to some interesting, maybe useful perspective on the bailout and the financial crisis.

Yesterday in the mail, I had three new credit offers and an offer for a lower interest rate on an existing credit card. One of the offers was for a debt consolidation loan: The letter said I was pre-qualified for an amount twice the value of our home. Shouldn't I be seeing these credit offers drying up? I understand that there's a lag between Wall Street and Main Street, but I'd have thought the Main Street lenders would tighten up at the first sign of trouble on Wall Street, just as the gas stations boost prices as soon as the price of oil goes up, in anticipation of higher prices for wholesale gasoline.

Martin Feldstein on home prices and housing starts. Feldstein was Reagan's chief economic adviser in the mid '80s, and he was being interviewed on Sept. 30 on the Charlie Rose show.

ROSE: ...What do you believe could and what do you believe will not get us out of this?

FELDSTEIN: Well, I think I'd come back to the issue that it's being driven by the fall in house prices. That's making people poor and forcing them to think twice about spending. It's hurting the financial institutions. It's obviously stopped construction. Housing starts are down 40 percent from a year ago. So if we don't stop that rut, if we don't stop that decay, it's hard to see how this process stops.

House prices over shot in the up direction by some 60 percent. What's to stop them from falling 60 percent below a normal level? Nothing, if we don't find a way of stopping this process of default and foreclosure. So to me that is key to stopping this.

ROSE: And something that's not being done so far.

FELDSTEIN: And something that's not being done. I think that the Treasury proposal will help to take some of the bad impaired assets off the balance sheets. The Barney Frank-Chris Dodd legislation that was passed earlier will help some people with negative equity and are on the verge of defaulting. But none of that will stop this downward spiral in house prices that needs to be stopped. In addition to what has been done and what is proposed by the Treasury and the Congress, I think we need to do a third piece.

In the Wall Street Journal Feldstein offers his prescription:

We need a firewall to break the downward spiral of house prices. Here's how it might work. The federal government would offer any homeowner with a mortgage an opportunity to replace 20% of the mortgage with a low-interest loan from the government, subject to a maximum of $80,000. This would be available to new buyers as well as those with mortgages. The interest on that loan would reflect the government's cost of funds and could be as low as 2%. The loan would not be secured by the house but would be a loan with full recourse, allowing the government to take other property or income in the unlikely event that the individual does not pay. It would by law be senior to other unsecured debt and not eligible for relief in bankruptcy.

The individual could repay the loan at any time or could refinance the remaining loan on more favorable terms as long as the principal did not increase. A 30-year amortization of the government loan would make the payments low, and a life-insurance policy would protect taxpayers if the borrower dies before the loan is repaid. If the homeowner chooses to accept the loan, creditors would have to accept the 20% mortgage repayment, reducing the monthly payments of principal and interest by 20%.

It sounds a bit like an element of Dave Ramsey's plan.

But Ed Glaeser says we should let housing prices continue to fall:

First, the government has no business trying to make housing less affordable to ordinary Americans. Over the past 10 years, areas like New York and San Francisco, which had always been expensive, became completely out of reach. According to the National Association of Realtors, the median housing price in San Francisco was over $800,000 in 2007, and has declined to a mere $685,000 in the second quarter of 2008. The real problem is not the current price decline, but the previous price explosion.

There is no reason to hope that middle-class Americans should pay more for any basic commodity, whether that commodity is coffee or oil or housing. Government should be fighting to reduce supply-side barriers and make housing cheaper, not trying to inflate prices artificially.

ABC News reports that "After Bailout, AIG Execs Head to California Resort". And they're asking the Fed for more money.

In the Washington Post Sebastian Mallaby says we shouldn't blame deregulation:

The real roots of the crisis lie in a flawed response to China. Starting in the 1990s, the flood of cheap products from China kept global inflation low, allowing central banks to operate relatively loose monetary policies. But the flip side of China's export surplus was that China had a capital surplus, too. Chinese savings sloshed into asset markets 'round the world, driving up the price of everything from Florida condos to Latin American stocks.

That gave central bankers a choice: Should they carry on targeting regular consumer inflation, which Chinese exports had pushed down, or should they restrain asset inflation, which Chinese savings had pushed upward? Alan Greenspan's Fed chose to stand aside as asset prices rose; it preferred to deal with bubbles after they popped by cutting interest rates rather than by preventing those bubbles from inflating. After the dot-com bubble, this clean-up-later policy worked fine. With the real estate bubble, it has proved disastrous....

The appetite for toxic mortgages was fueled by Fannie Mae and Freddie Mac, the super-regulated housing finance companies. Calomiris calculates that Fannie and Freddie bought more than a third of the $3 trillion in junk mortgages created during the bubble and that they did so because heavy government oversight obliged them to push money toward marginal home purchasers. There's a vigorous argument about whether Calomiris's number is too high. But everyone concedes that Fannie and Freddie poured fuel on the fire to the tune of hundreds of billions of dollars.

So blaming deregulation for the financial mess is misguided. But it is dangerous, too, because one of the big challenges for the next president will be to defend markets against the inevitable backlash that follows this crisis. Even before finance went haywire, the Doha trade negotiations had collapsed; wage stagnation for middle-class Americans had raised legitimate questions about whom the market system served; and the food-price spike had driven many emerging economies to give up on global agricultural markets as a source of food security. Coming on top of all these challenges, the financial turmoil is bound to intensify skepticism about markets. Framing the mess as the product of deregulation will make the backlash nastier.

We're Not Headed for a Depression - WSJ.com

So says Gary Becker, Nobel Economics prize winner and professor at the U. of Chicago. But he says to avoid future problems we need to increase capital requirements, stop the bailouts, and sell Fannie Mae and Freddie Mac.

Perry Eidelbus says Obama's objections to McCain's mortgage plan is hypocritical:

McCain's proposal is merely an amplification, expansion, whatever you want to call it, of what the FHA is doing [as part of the big bailout plan]. If McCain's plan "won't work," then how can we expect the existing one to work when it does the same thing? Albeit on a smaller scale, and perhaps not with precisely the same details, but both have the same bottom line: Peter and Paul get to pay taxes to pay off part of Mary's mortgage, never mind that Mary alone got herself into the trouble.

The reason it won't work, the critics say, is because it will buy up or refinance homes at greater than their true value. Gee, as if the first $300 billion wasn't doing that? As if the federal government isn't already doing that with the absurd $700 billion to buy up "distressed" securities that nobody would buy at the prices the federal government is offering?

Steve Chapman :: Townhall.com :: A Rescue Plan That Didn't

You may remember that when the House of Representatives voted against the original rescue plan, it was blamed for the subsequent 778-point drop in the Dow Jones Industrial Average. This stomach-turning development was clear proof of the urgent need for the bailout.

But if a stock market's performance is the test of a policy, this one has failed. At best, the passage of the measure did no evident good. At worst, it backfired....

Instead of stimulating productive activity by removing doubt, it has impeded it by multiplying doubt. It has also encouraged lenders to hold off dealing with their bad debt in hopes of getting a better deal from the Treasury than they can dream of getting from anyone else. But postponing the banks' rendezvous with reality will not speed recovery.

Fox News: Lawmaker Accused of Fannie Mae Conflict of Interest

Unqualified home buyers were not the only ones who benefitted from Massachusetts Rep. Barney Frank's efforts to deregulate Fannie Mae throughout the 1990s.

So did Frank's partner, a Fannie Mae executive at the forefront of the agency's push to relax lending restrictions.

Now that Fannie Mae is at the epicenter of a financial meltdown that threatens the U.S. economy, some are raising new questions about Frank's relationship with Herb Moses, who was Fannie's assistant director for product initiatives. Moses worked at the government-sponsored enterprise from 1991 to 1998, while Frank was on the House Banking Committee, which had jurisdiction over Fannie....

The two lived together in a Washington home until they broke up in 1998, a few months after Moses ended his seven-year tenure at Fannie Mae, where he was the assistant director of product initiatives. According to National Mortgage News, Moses "helped develop many of Fannie Mae's affordable housing and home improvement lending programs."

Critics say such programs led to the mortgage meltdown that prompted last month's government takeover of Fannie Mae and its financial cousin, Freddie Mac. The giant firms are blamed for spreading bad mortgages throughout the private financial sector.

Although Frank now blames Republicans for the failure of Fannie and Freddie, he spent years blocking GOP lawmakers from imposing tougher regulations on the mortgage giants. In 1991, the year Moses was hired by Fannie, the Boston Globe reported that Frank pushed the agency to loosen regulations on mortgages for two- and three-family homes, even though they were defaulting at twice and five times the rate of single homes, respectively.

OpenMarket.org: Bash the Bailout: Government is Not the Answer

A link dump within a link dump. Iain Murray of the Competitive Enterprise Institute provides links to 12 articles that explain how government intervention in markets created the crisis at hand.

The dumbest people on Earth | MY Vast Right Wing Conspiracy (via Kick the Anthill's "Craptacular News of the Day")

Tom and Tina have been paying on their 100k mortgage for a couple years before having trouble. The home is still worth 100k so they have a small bit of equity. If they sold, they would make a small profit maybe depending on the realtor costs. But now enter Obama's idea. The bank is told to rewrite the load as a 75K loan for 30 more years. Now Tom and Tina turn around immediately and sell the house for that 100K and make a quick 20k plus profit all courtesy of the federal government. They can and will do that over and over. The "poor" know how to game the system and exploit every dollar. This will become the new career. Defaulting on mortgages to get equity and selling for that equity.

I'm beginning to think that the dumbest people on Earth are people like me who actually pay their bills on time. I see all that is going on and I keep thinking why should we when you can apparently just walk away and have no consequences.

Casaubon's Book: Ok, Now What?
(Via Crunchy Con: Preparing for the Worst)

We're all going to need reliable sources of food. We're all going to need some transportation. We're going to need health care, and emergency services. We're all going to need good work - even if it is only for food. We're going to need ways to keep people housed, to connect folks who need homes with those who can't keep them unless they rent some space. A lot of people are going to need warm clothes and blankets. A lot of people are going to need a meal, a helping hand, help with disabled family members and elders. And folks, when the formal economy falls away, when we cannot trust our government to act in our interests, all of us have to get acting to compensate, to keep the wolf from the door. The truth is that the bailout, on one level, was the final reminder of what Hurricane Katrina taught us, that no one is coming with a helicopter to rescue us. Fortunately, some of us have boats, and the rest of us can build life rafts, and there's a lot we can do to rescue ourselves.

KunstlerCast Transcripts

And here are some comments from area bloggers:

Tyson Wynn thinks this may be an opportune time to push for the Fair Tax.

Jeff Shaw's title says it all: The Pressure to Help Low Income and Minorities. Political Promises Gone Amok and Enhanced by Greed.

The crisis has motivated Bobby Holt to blog, and he shares with us his letters to Sullivan, Coburn, & Inhofe about the bailout.

The Bill Kumpe Blog: Bailout or Not, It's Gonna Be A Blue Christmas

Ardent Voice's mailbox looks like mine:

Yes, there were actually four credit card and/or convenience checks offers in today's mail, including one from WaMu. Most of us would be more than willing to help a recovering alcoholic get back on their feet, but we have to feel like that they are in recovery and the money we contribute won't just go for more liquor.

Mad Okie says Tulsa should have taken care of priorities when times were good:

Back when Tulsa had money and the economy was "good", those in power thought it would be a good idea to build an arena, repay BoK for a failed airline, and to move city hall to the most expensive building downtown.

Now that the economy has taken a nose-dive they want you and me to pay more in taxes to do something they should have been doing all along... fixing our roads.

Oklahoma per Square Foot reports that lenders are tightening up on credit for buying commercial real estate for investment purposes -- by a whole percentage point:

It was revealed that those lenders that are underwriting commercial deals are not lending money for properties priced below a 9% capitalization rate, except in rare circumstances. This is concerning for the market since well over half of the investment deals transacted just in Oklahoma City over the past few years were priced at capitalization rates were in the 7% to 8% range with a few deals transacting under 7%. Now, with lenders only financing deals priced over 9%, it will become increasingly difficult for owners to achieve the high sales prices that have been driving the market for the past four years.

But there's some "good news for Oklahoma's apartment markets":

For Oklahoma City, Hendricks reported increased demand for apartment units by renters, which is largely the result of the slowing in the single-family housing market. During the second quarter, the increased demand led to an overall vacancy of 7.9%, which is a record low level for the city. Furthermore, as vacancy decreased, the report also noted increases in rental rates. Overall rents grew 4.3 percent during the second quarter when compared to 2007 totals. The most significant gain came in the North submarket, which posted a rental rate increase of 5.2 percent.

Hendricks reported a sharp decrease in apartment vacancy to 8.1 percent, which is the lowest vacancy in nearly four years, according to the report. Tulsa experienced higher rent growth than Oklahoma City with a 5.4 percent increase. Two Tulsa submarkets experienced rent growth of over 6 percent in the greater downtown and Broken Arrow areas.

(Click the link to read Bailout link dump, part 1)

Barney Frank, Nancy Pelosi, George Soros, Herbert and Marion Sandler: They're all here.

Spot-on satire. Fred Armisen's Barney Frank is priceless.

(Via Club for Growth.)

UPDATE: Guess what? NBC pulled the sketch without explanation. Perhaps it was too honestly critical of Democrats, in particular three wealthy and powerful people who fund far-left organizations: George Soros and Herbert and Marion Sandler. Michelle Malkin has details and a link for filing a complaint with the network.

It was the best satire of the night. Here are the script and screengrabs.

STILL MORE: NBC never posted video of the September 20 sketch ridiculing the provincialism of New York Times reporters. Video was posted to YouTube, but NBC forced them to pull it from the site.

TUESDAY NIGHT: Video is back up, but two things have been cut: The chyron saying "Herbert and Marion Sandler: People who should be shot," and this part:

[ Pelosi hugs Mrs. Sandler ]

Herbert Sandler: And thank you, Congressman Frank, as well as many Republicans, for helping block congressional oversight of our corrupt activity. [ he and his wife step away ]

Barney Frank: Not at all!

In other words, they got rid of anything that could get them sued by the Sandlers. Too bad they had to lose the "thank you, Congressman Frank" line.

Sen. Tom Coburn was on with 1170 KFAQ's Pat Campbell this morning explaining his decision to vote for the $700 billion bailout. It was strange to hear Coburn acknowledge that this bill might not work, that this bill didn't address the underlying causes, but that we had to do something. He compared it to using a defibrillator on a heart attack patient; you deal with his high cholesterol levels after you've saved his life.

But how did Tom Coburn become persuaded that the current situation is a financial heart attack and that the bailout is a financial defibrillator?

Coburn mentioned that he heard from the heads of all the biggest banks in Oklahoma. He specifically mentioned, by title but not by name, the chairman of the Bank of Oklahoma. (That's George Kaiser, if you didn't know.) He heard that banks won't lend to each other, that people with 650 credit scores couldn't get car loans, that businesses were having their loans called by banks who needed the money on their books.

A couple of days ago, while folding laundry, I was struck by similarities between the mortgage bailout and the BOk / Great Plains Airlines bailout. In both cases, I have the sense that the bailout is not to stave off dire consequences for the general public, but dire consequences for big shots who made bad decisions.

Recall that in the Great Plains situation, BOK made a bad loan after two initial refusals, based on private assurances from then-Mayor Susan Savage that the City of would make the bank whole if the loan went bad. That's according to former Councilor Jim Mautino:

In another video on that same entry, Jim Mautino mentions being called to the office of Stan Lybarger, president of BOk. Mautino took city attorneys Larry Simmons and Drew Rees with him to the meeting. Lybarger told them that he had twice turned down the Great Plains loan, but relented because then Mayor Susan Savage gave him "assurances." This would be the same Savage who gave "assurances" to the City Council at the time that transfering AFP3 to the Tulsa Industrial Authority would not expose the City to any liability in the Great Plains financing deal.

Tulsa city councilors were warned that the city's credit rating would suffer if the city didn't pay back the loan. I suspect that the real worry was that some BOk executives would suffer legal consequences if this bad debt hadn't been paid off before a certain deadline. A federally-insured bank isn't allowed to make risky loans for political reasons.

In the current "crisis," we're hearing from a lot of Wall Street types of impending doom, but we're not seeing an unreasonable tightening of credit on Main Street. My suspicion is that this bailout is really about protecting fat cats from the consequences of their bad decisions, and the fat cats are doing a fine job of spooking Congress into a stampede.

I think Coburn was sincere in stating the rationale for his vote. It may be that the bank officials were shooting straight with him. Then again, he was taking his cues from someone who supports bigger government and higher taxes and is a bundler for Barack Obama.

MORE: Whom did Coburn convince? (Emphasis added.)

Just talked to a Republican leadership aide. Here's what he had to say about the big margin today. He cited three factors:

1) Up to the point of the Monday vote, members were only hearing from people adamantly opposed to the bill. After the vote, that changed. They began to hear from employers, bankers, and opinion leaders back in their districts who told them how much it would hurt the local economy if they didn't act to try to calm the credit markets; 2) The strong Senate vote helped. Members could say to themselves, "Well, both my state's senators voted for it." And Sen. Tom Coburn's strong support for the measure carried a lot of weight with House conservatives; 3) The inclusion of the FDIC increase gave members something positive and easy to understand to talk about in explaining the bill. The purchase of illiquid assets isn't easy to explain, and if you can explain it, doesn't sound very appealing to anyone. The FDIC provision was easier to portray as a proposal to help "Main Street," with local bankers complaining and worrying about large withdrawals.

Oklahoma Sen. Tom Coburn ate the "crap sandwich" (House Minority Leader John Boehner's phrase), but not without dispensing some strong medicine to his colleagues.

As a practicing physician, I compare where we are today to a physician who commits malpractice. We have a patient with cancer. They have a secondary pneumonia because of the cancer. We are going to treat the pneumonia. We are going to give the antibiotics, we are going to give something to lower the temperature, we are going to give something to suppress the cough, we are going to give something to thin the mucous, but we are not going to fix the cancer. We are going to ignore the cancer.

Let me tell you what the cancer is. The cancer is Congresses that, for years upon years, have totally ignored the Constitution of the United States and taken us to areas where we have no business being. There is no way you can justify, in the U.S. Constitution, that the country ought to be the source of mortgages for homeowners in this country. Yet Fannie Mae and Freddie Mac control 70 percent of the mortgages in this country.

I plan on voting for this bill. I support that we have to do something now. But how we got here is very important if we are going to fix things in the future....

If anybody in America is mad about this situation, there is only one place they need to direct their anger and it is right in the Congress of the United States.

It is not specific Members, it is bad habits. We are not going to cut out the cancer. We are not going to give the radiation therapy. What we are going to do is we are going to continue to treat the symptoms rather than directly go after the cause that has created the greatest financial risk and peril this country has ever seen. We are not going after the cause.

The cause is get back within the bounds of the Constitution that very specifically says where we have business working and where we do not. Because we are out of those bounds, we have now put at risk every job in this country, the savings and retirement of people who worked for years, because we decided we would ignore the wisdom of our Founders and create systems that are outside the enumerated powers that were given to us because we know better.

We do not know better. It is obvious. There is no administration to blame. It is not the Clinton administration or the Bush administration's fault we are in this mess. Because if you say that, what you have to say is you did all the oversight, you had all the hearings, you knew what was going on and you didn't do anything about it. So either we didn't know or we did know and did nothing about it.

There is only one place to come to hold accountability and it is in this body....

It is very simple. We are committing malpractice. We are not living up to the oath we undertook when we became Members of this body. That oath says you will defend and uphold the Constitution. It doesn't say you will rewrite it because it pleases you politically. We are here today because of fatal errors on the part of Members of this body to do something that is totally outside the bounds of the wisdom and foresight our Founders gave us.

Those are tough words. But we are in tough times. If we do not get about withdrawing and getting back within the realms of the power granted to us, this is just the first in a very large roll of problems this country is going to face.

Full remarks after the jump.

The senator from South Carolina and champion of fiscal conservatism had this to say during last night's debate on the bailout:

We have seen this Government socialize our education system and make our schools among the worst in the world. We have seen this Government take over most of our health care system, making private insurance less and less affordable. We have seen this Government socialize our energy resources and bring our Nation to its knees by cutting the development of our own oil and natural gas supplies. And now we see this Congress yielding its constitutional obligations to a Federal bureaucracy, giving it the power to control virtually our entire financial system. Americans understand this and they are angry. They are our judge and our jury. They are watching what we are doing, and they will render their verdict based on our actions.

I was happy to see Jim Inhofe vote no, and more than a little surprised that Tom Coburn voted yes. I do understand the fear that the failure to vote for this bill would lead to an even worse bill that would win the support of the most left-wing members of Congress.

Read DeMint's complete remarks after the jump.

Perspective worth reading on the mortgage crisis and the proposed bailout, going before the U. S. Senate today:

Dave Ramsey's Common Sense Fix: Government insurance for mortgages in exchange for rolling back payments into current balance, fixing the rate, and canceling prepayment penalties; remove "mark to market" accounting for two years on Tier III subprime loands; completely remove capital gains taxes.

Mark Sanford - A Bailout for All Our Bad Decisions? - washingtonpost.com

For 200 years, the "business model" in our country has rested on a simple fact: that while one may reap rewards from taking risks, one should also be prepared to face the consequences of those risks. Some of the proposed actions with regard to the credit market turn that business model on its head -- absolving those who took too much risk, or bought too much house, from the weight of their own choices. If Congress passes the proposed bailout, we will be destined to have far greater problems in time, leaving those who are prudent in their finances to foot the bill for those who are not....

Last week's events were rooted in distressed mortgage securities whose optimistic values were facilitated by quasi-governmental entities Fannie Mae and Freddie Mac. The investment banking capital write-downs were turbocharged by the Sarbanes-Oxley Act, which did what too many laws do -- it fixed yesterday's problem. The amazing expansion of credit was fueled by a Federal Reserve offering an easy-money policy that led us right into a credit bubble. All this was made worse by the government enabling some people's tendency to want more house than they can afford.

With that bubble popped, we will now go through a major financial de-leveraging. It will be painful. Yet to preserve what has made this country great, we need to be on guard against Washington offering endless cures to our ills.

U.S. Congressman Mike Pence : 6th District Of Indiana: Pence opposes Bush administration bailout plan

Americans for Limited Government letter to Congress against the bailout

American Thinker: Barack Obama and the Strategy of Manufactured Crisis: The Cloward-Piven Strategy, ACORN, Jim Johnson, Franklin Raines, Penny Pritzker, and the Democratic nominee.

Ben Stein: Everything You Wanted to Know About the Credit Crisis But Were Afraid to Ask:

Here s one big part of the answer. First, the alert reader will notice that Ben Stein said many times that the amount of money at risk in the subprime meltdown was just not enough to sink an economy of this size. And I was right...to a point. The amount of subprime that defaulted was at most - after recovery in liquidation - about $250 billion. A huge sum but not enough to torpedo the US economy.

The crisis occurred (to greatly oversimplify) because the financial system allowed entities to place bets on whether or not those mortgages would ever be paid. You didn't have to own a mortgage to make the bets. These bets, called Credit Default Swaps, are complex. But in a nutshell, they allow someone to profit immensely - staggeringly - if large numbers of subprime mortgages are not paid off and go into default.

The profit can be wildly out of proportion to the real amount of defaults, because speculators can push down the price of instruments tied to the subprime mortgages far beyond what the real rates of loss have been. As I said, the profits here can be beyond imagining. (In fact, they can be so large that one might well wonder if the whole subprime fiasco was not set up just to allow speculators to profit wildly on its collapse...)

These Credit Default Swaps have been written (as insurance is written) as private contracts. There is nil government regulation of them. Who writes these policies? Banks. Investment banks. Insurance companies. They now owe the buyers of these Credit Default Swaps on junk mortgage debt trillions of dollars. It is this liability that is the bottomless pit of liability for the financial institutions of America.

Because these giant financial companies never dreamed that the subprime mortgage securities could fall as far as they did, they did not enter a potential liability for these CDS policies anywhere near their true liability - which again, is virtually bottomless. They do not have a countervailing asset to pay off the liability.

This is what your humble servant, moi, missed. This is what all of the big investment banks and banks and insurance companies missed. This is what the federal government totally and utterly missed. This is what the truly brilliant speculators in these instruments did not miss. They could insure a liability they could also create and control. It is as if they could insure a Cadillac for its value upon theft - but they could control what the value the insurer had to pay off was. The insurer thought it might be fifty thousand dollars - but it was manipulated into being two million.

This is the whirlpool sucking down finance.

The Credit 'Crisis' - September 26, 2008 - The New York Sun. The Sun editorial board gives us another reason to miss them already:

Our friends at the New York Post set out this week to document the baleful effects of the credit crisis on ordinary New York businesses, attempting to make the case for the need for speedy federal passage of the Paulson plan. "Scores of small-business owners are struggling to get tightfisted banks to dole out loans for much-needed expansion plans," the Post reported.

The Post found two cases: "the owners of Five Point Fitness were given the runaround by their skittish bank for months -- and eventually had to borrow $175,000 from well-heeled clients." And "Kenny Lewis, 39, who owns a Subway sandwich-shop franchise in Queens. He applied for a $25,000 Small Business Administration loan and was told he'd get an answer in seven business days." Reports the Post: "He is now considering borrowing from private investors, saying 'they believe in what I'm doing.'"

Forgive us, but this strikes us as something less than a crisis. Neither the sandwich shop nor the gym have closed. Both are turning to private investors rather than banks. What, exactly, is wrong with that? Truth is, there is a vast amount of private capital waiting on the sidelines for opportunities to invest. The Investment Company Institute reports that, for the week ended Wednesday, September 24, there were $3.398 trillion in money market mutual fund assets -- enough to make that $700 billion Paulson plan look like small change....

If the politicians can't agree on a bailout plan, that may be for the best. One possibility that hasn't been adequately appreciated is that the stock market is poised for a rally anyway. If it happens without the "bailout," Americans will understand that economic growth doesn't require the government buying or seizing lots of assets. If it happens after the bailout, Americans may fall into the post hoc ergo propter hoc fallacy and get the false impression that the bailout was the cause of the rally.

The Corner on National Review Online: Mark Steyn: Burke's law:

One of my problems with the "bailout" is the way it's presented not as an emergency measure to correct the stupidity of previous political interference but as evidence of the flawed nature of the market, and thus a justification for more must-pass "emergency" measures ahead. Exhibit A - President Sarkozy rejoicing in the end of "Anglo-American capitalism":

The idea of an all-powerful market without any rules and any political intervention is mad. Self-regulation is finished. Laissez faire is finished. The all-powerful market that is always right is finished.

As a general proposition, when told by unanimous elites that a particular course of action is urgent and necessary to avoid disaster, there's a lot to be said for going fishing. If the entire global economy is so vulnerable that only the stalwart action of Barney Frank stands between it and ten years of soup kitchens, can it, in fact, be saved? Or look at it the other way round: Given any reasonable estimate of the number of headless chickens running around, was the five per cent fall in Asian markets and seven per cent "plummet" on the Dow in reaction to the House vote really the catastrophe some of my pals round here seem to think it was? If fear of seven per cent falls is enough to justify massive unprecedented government intrusion into the private sector, we might as well cut to the chase and go for the big Soviet command economy.

The Corner on National Review Online: Mark Levin: Thank you, House Republicans:

Also, count me among those few here who want to thank the House Republicans for taking a bold stand against what had been a stampede on a scale I have never before witnessed on matters of huge consequence. Conservatism is more than a quaint belief-system to be embraced and debated over donuts at Starbucks. It is more than a list of talking points. It is the foundation of the civil society. The liberal uses crises, real or manufactured, to expand the power of government at the expense of the individual and private property. He has spent, in earnest, 70 years evading the Constitution's limits on governmental power. If conservatives don't stand up to this, who will? If they don't offer serious alternatives that address the current circumstances AND defend the founding principles, who will? The House Republicans have done both. And I, for one, thank them.

Incidentally, if you want to buy a home or car today you can. And if your credit is decent, you can get loans at a good rate. Last week we were told that if a deal was not struck by last Friday, our economy would collapse. It has not. That is not to say the evidence of economic troubles or worse should be ignored. It is to say that now is a time for reasoned decisions based on tried and true principles, not for abandoning them. I notice that the socialist, who, for the last 30 years, has insisted that private institutions make risky loans based on non-economic factors, still has not abandoned his policies. Socialism does not work. We shouldn't support more of it.

Republican Study Committee letter opposing bailouts from September 17:

We write to express our deep concerns over the increasing propensity, size, and frequency of government interventions to prop up failing private sector companies. These bailouts have set a dangerous and urnmistakable precedent for the federal government both to be looked to and indeed relied upon to save private sector companies from the consequences of their poor economic decisions....

It is evident that no one wants to be the one who says no to a fiscal rescue when there is so much at stake. But the reality is that actions like federal bailouts taken to delay short-term financial pain often end up producing long-term damage to our entire economy. One need only look to Japan and the banking crisis that led to its 'Lost Decade' of recession and stagnant economic growth from which it has still failed to recover. The IMF has called those economic problems "a failure to deal proactively with the impact of the collapse in asset prices" that has led to real GDP growth only averaging 1 percent a year over the past decade.

Republican Study Committee: Chairman Hensarling's Statement on the Economy and Administration Plan for Financial Markets: Initial reaction to the Paulson plan's release on September 19.

Human Events: Republican Study Committee Releases Alternative to Bailout Proposal: Suspend "Mark to Market," stabilize the dollar, schedule Freddie Mac and Fannie Mae for privatization, two-year suspension of capital gains taxes, followed by indexing for inflation.

Hot Air: Party like it's 1999 redux: The New York Times predicted Fannie Mae failure

Frank's fingerprints are all over the financial fiasco - The Boston Globe

Brian Wesbury: Psychology and the Economy (via Club for Growth):

Never in history has a drop in consumer confidence caused a recession. But that does not mean there won't be a first time. It could happen in the next few months and we would expect to see some very negative data on economic activity. But this would be followed by an offsetting increase in activity following the psychological slowdown.

Productivity is still booming, and so are exports, the Fed is exceedingly accommodative and tax rates have not been hiked. Moreover, oil prices are below $100 per barrel. Finally, all it would take to fix financial market problems today is a temporary suspension of mark-to-market accounting for a targeted set of illiquid assets.

In other words, any economic problems that the US faces in the next few months or quarters is temporary. Financial markets have priced in Armageddon, and as a result still present one of the greatest buying opportunities of our lifetimes.

Ross Putin: Rule change hypocrisy:

As I noted in a prior posting, financial stocks fell more than 8% on Monday, with short-selling not permitted. Who do they blame for that, with the evil speculating short-sellers out of the picture? So they impeded the free market with no proof of justification.

On the other hand, the price of mortgage securities has been plummeting for months primarily because of a recently imposed rule change called "mark-to-market", which basically forces banks to say that their mortgage security portfolios are worth much less than an objective analysis absent those rules would show them to be. That reduction in "capital" forced banks to try to sell these things and get cash on their balance sheets. But there's no progress in getting the destructive rule changed, even temporarily for a very narrow range of assets....

The short-selling rule change combined with the lack of change in the mark-to-market rule demonstrates that what Congress wants even more than to "save the economy" is to increase their own power and to attack the most fundamental aspects of capitalism and free markets. I only hope the House Republicans can move the debate away from the Paulson/Barney Frank plan.

MORE:

Jeffrey Miron: Bankruptcy, not bailout, is the right answer. The Harvard lecturer in economics writes:

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources....

The bailout has more problems. The final legislation will probably include numerous side conditions and special dealings that reward Washington lobbyists and their clients.

Anticipation of the bailout will engender strategic behavior by Wall Street institutions as they shuffle their assets and position their balance sheets to maximize their take. The bailout will open the door to further federal meddling in financial markets.

So what should the government do? Eliminate those policies that generated the current mess. This means, at a general level, abandoning the goal of home ownership independent of ability to pay. This means, in particular, getting rid of Fannie Mae and Freddie Mac, along with policies like the Community Reinvestment Act that pressure banks into subprime lending.

Spengler: Asia Times: Truth, lies, and ticker tape

If American banks are permitted to fail, and their operations maintained intact by the FDIC, new investors can restart operations with a clean slate.

What is so awful about wiping out the home price bubble of the past 10 years? Suppose home prices were to plunge by half (which is where homes in foreclosure clear the market in California or Florida)? Young people would find it easier to start families and old people would work longer before retiring.