Robert Murphy

Undeterred by the failure of the last injection of taxpayer dollars into a bloated banking system, our financial crusaders in DC are scratching their heads over the best way to flush another few hundred billion away. The latest scheme involves the creation of a “bad bank” that would purchase the so-called “toxic” mortgage-related assets from the troubled institutions.

The theory is that when the government’s “bad bank” lifts these toxic assets off their books, the commercial banks will then be able to lend out the money that taxpayers already gave to them during the last bailout.

Every taxpayer who plans on staying in the United States for the next few years should be very concerned when the government purposely overpays for assets, and even creates something with the word “bad” in its title to house them. That’s like the Department of Agriculture buying wheat to store in a “bad silo.” Would you feel good about that wheat? Well you shouldn’t feel good about these mortgage-backed securities that are about to be dumped on your shoulders, either.

The truly insidious aspect to government bailouts is that they give the politicians a plausible reason to micromanage these firms. It would be bad enough if the politicians simply took a few hundred billion from the taxpayers and handed it over to rich bankers who made risky bets during the housing boom. The taxpayers would be out $700 billion, while the bankers would be up $700 billion. Certainly not fair, but it wouldn’t be the end of the world.

But the government gave that original TARP money to the banks with strings attached. Now, President Obama can very credibly tell America’s corporations how much they can pay their executives, if they want to take government bailout money.

The most ironic thing about all of this is that the conditions set forth by Obama are not onerous in the least! For one thing, doesn’t $500,000 seem like a lot of money to be making, when you just ran your company into the ground? Does that really sound like President Obama just sent those naughty executives to the time-out corner?

Robert Murphy

Robert Murphy has a Ph.D. in economics and is the author of The Politically Incorrect Guide to Capitalism (Regnery 2007).

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