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Wednesday, November 19, 2008
Maggie Gallagher :: Townhall.com Columnist
No More Bailouts
by Maggie Gallagher
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I remember vividly standing in the lobby of a local hospital, watching a few minutes of the bailout bill testimony on television. A woman in green scrubs -- a lab technician -- stopped with me to watch. I will never forget the sheer fury in her voice. "The bums," she muttered. "They take care of each other -- who's going to take care of us?"

In the atmosphere of crisis at the time, weeks before an election, perhaps the bailout vote can be forgiven. Perhaps.

But let us draw a line in the sand, here and now, to prevent the emergence of that horribly deformed system, crony capitalism.

No more bailouts.

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About The Author

Maggie Gallagher is a nationally syndicated columnist, a leading voice in the new marriage movement and co-author of The Case for Marriage: Why Married People Are Happier, Healthier, and Better Off Financially.

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(27 comments so Far)
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Reply # 1
Date: Nov 20, 2008 - 10:11 PM EST
What I had recommended
What should have been done from the outset:
1. Lower the fractional reserve requirement. If it is at $9, decrease it to $8. This (when done in conjunction with #2) would help restore confidence in the system as it would alleviate the forced deleveraging that is at the heart of the death spiral.
2. Repeal SOX. Doing so will accomplish two things. First, it will completely eliminate the mark-to-market rule, Rule 157, which is causing the massive write-downs responsible for this death spiral. (Congress gave the SEC the authority to do so in the TARP, but as soon as the SEC timidly pawed at the rule, the FASB issued contradictory advice, leaking rumors of their motives and intentions as they did so. What we have now is a state of non-objective law, and so the write-downs continue). SOX is the legal basis for Rule 157.

Second, investments will ultimately only occur if investors see that there are growth prospects justifying the investment. SOX acts like a clamp on companies' productive opportunities and profitability.

If our leaders want to get rid of SOX but don't have the guts to do so directly, then they should at least try to work informally to push the anti-SOX lawsuit coming up through the system in front of the SCOTUS ASAP.

These options are not particularly palatable to our leaders in part because they would essentially be an admission that our leaders screwed up in the first place by passing SOX and not adjusting reserve requirements appropriately to the changing conditions. But they are necessary; these are systemic solutions, affecting everyone across the board, not piecemeal gimmicks that take from one to give to another. There is nothing else to do; nothing else can work. More bailouts and Doing Things will make the problem worse. Companies cannot act productively as long as government is out there changing the financial ecosphere on a daily basis.
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Reply # 2
Date: Nov 20, 2008 - 9:42 PM EST
Several comments
First, "crony capitalism" is a contradiction in terms. It is an anti-concept developed by the left to divert focus from uncomfortable questions about who actually caused and exacerbated the financial crisis and what the proper name for such a state of affairs is.

Second, it should be abundantly clear at this juncture that intellectuals and their politicians no longer have the luxury of cooperating with ideas and voting for measures that they do not really understand. They should have never gone along with Paulson's say-so just because they felt it was their job to Do Something. It was their job to understand what the problem was, what could alleviate or fix the problem, and how to implement that fix, then to implement it. Going forward, they will have to start asking questions and getting the other side of the story to form a complete picture. The days of faith-based capitalism are over, because while capitalism works, faith does not.

Third, the change to a bank recapitalization plan was the idea of Yves Smith over at Naked Capitalism and her ilk of finance consultants. They had looked at other financial crises and how those countries along with the IMF handled the crises. Bank recaps worked best of the alternatives that were implemented. It should be noted, and Smith will admit, that the alternatives were limited in number and nature, and there were no negative controls. No one has tried the alternative I have been yelling for (next post), or doing nothing.
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