People often go into government to do that. But even when people mean well, it's natural for them to help out their cronies.
David Stockman, who ran the Office of Management and Budget under Ronald Reagan, was criticized for saying the government's budget numbers didn't add up. But he was right.
Now, in his book "The Great Deformation," he says both major political parties failed ordinary Americans when the housing bubble burst, and they rushed to bail out cronies at big banks. Government continues to threaten our future by printing gobs of money and guaranteeing trillions in loans to banks, homeowners, students and other politically connected groups.
The political class claims the economy would have been destroyed in 2008 without a bailout of the big banks. Stockman says that's a myth: "The Main Street banks were not going to go into a huge retail bank run ... and (Fed chairman Ben) Bernanke is totally wrong when he says we were on the verge of Depression 2.0. We weren't close. We would have worked our way through it. We've done it many times in history."
Worked our way through it? Without the bailouts, there might have been a bigger stock market drop, and more businesses would have closed! But Stockman says, so what? It would have been worth it. And I agree with him.
Today, taxpayers would be $1 trillion richer and not on the hook for trillions in loan guarantees. Prices would now have found a natural floor, business would be eagerly hiring again, and America would be free of moral hazards like "too big to fail" banks.
What do I mean by "moral hazard"? I once built a beach house on the edge of the ocean -- a very risky place to build -- but I did so because federal flood insurance guaranteed my investment. Eventually, a storm swept away my house, but I didn't lose a penny. Government "insurance" covered my loss. Thanks, taxpayers!
Now that I'm wiser -- and more libertarian -- I'm ashamed that I took your money and understand that the whole program is a mistake. The same government that worries about global warming causing flooding spends billions to compensate risk-takers who live next to oceans. That's moral hazard.
But beachfront property owners have political connections. They make desperate calls to legislators. Politicians respond to whoever screams loudest.
When the housing bubble burst, politicians got panicked calls from their friends on Wall Street -- in many cases former colleagues. Instead of letting their old friends take big losses and trusting smaller banks to expand and take their customers, the political class propped up risk-takers who made bad bets.
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