Our political leadership -- folks like President George W. Bush, Treasury Secretary Henry Paulson, Rep. Barney Frank, D-Mass., Sen. John McCain, R-Ariz., and President-elect Barack Obama -- told us that the government would save us. They said that the economic crisis was so dire, so grim, that we needed to allow the government to spend our money to bail out Wall Street. They stated that Paulson, with full authority and no oversight, would be able to right the ship.
We were ignorant enough to believe them.
Now they tell us that Paulson has exercised his authority recklessly. They say that they want their oversight back. They state that they need more cash for bailouts, and they need more leeway to create new regulatory schemes.
Will we be stupid enough to believe them again?
So far, the federal bailout, which was designed to jumpstart lending, has cost $300 billion and produced no effect. This is not a surprise. Lenders are rational actors. They tightened lending standards because they were hit hard by the subprime crisis -- a crisis caused by lax lending standards. But instead of seeing stricter lending standards and occasional bankruptcies as the natural outgrowth of bad decisions, the government panicked. The credit had to flow, our politicians told us. And the best way to make the credit flow was to hand over more cash to lenders.
This, of course, was sheer idiocy. Handing lenders money wasnt going to get them to loosen lending standards again. That money was earmarked for lenders savings from the moment they received it -- lenders first priority is to their stockholders, who want to see profit margin, not more bad loans.
But the government wants bad loans to continue. And so the government has decided that if lenders wont provide them, the government will. The first step is rescuing the Big Three in Detroit. Were told that General Motors Corp., Ford Motor Co. and Chrysler are the key to American industry -- a statement laughable in its exaggeration. Were told that if automakers go under, unemployment will skyrocket. Were told that these companies are too big to fail.