Feeds:
Posts
Comments

Posts Tagged ‘Bailout’

When you support limited government and individual freedom, you don’t enjoy many victories. Particularly if you’re relying on the U.S. Senate.

But it occasionally happens.

The Senate held firm and stopped Obama from getting a fiscal cliff tax hike at the end of 2010.

The Senate overwhelmingly voted against a VAT.

The Senate unanimously rejected a Greek bailout.

To be sure, some of these votes were merely window dressing, but it’s still better to have symbolic victories rather than symbolic defeats.

Today, however, I want to report on a real victory against statism. The Senate Majority Leader, Harry Reid, has been forced to give up on his effort to ram through an expansion of IMF bailout authority as part of legislation giving money to Ukraine.

This is the second time that this White House initiative has been blocked.

Here are some blurbs from a report in Politico.

Senate Majority Leader Harry Reid will drop a provision to reform the International Monetary Fund from a bill to help Ukraine… Reid acknowledged that while the Ukraine package would likely have passed the Senate, it was “headed to nowhere” in the GOP-led House. …the administration did not hide its disappointment Tuesday afternoon over the removal of the IMF language. “We are deeply disappointed by the news that Republican opposition has forced the Senate to remove the [IMF] reforms from the Ukraine assistance package,” said Treasury Department spokeswoman Holly Shulman. …Backers of including the IMF reforms in the Ukraine deal note that it will help boost the organization’s lending capacity. …The United States is the lone holdout country that has not ratified the IMF deal, which was struck more than three years ago. But many congressional Republicans have raised concerns about potential taxpayer risk with the IMF agreement.

It goes without saying that the IMF won’t give up, and the Obama Administration is still pushing to expand the international bureaucracy’s bailout authority.

The battle will continue. Lew and ObamaIn preparation for the next skirmish, Desmond Lachmann at AEI debunks the White House’s empty talking points.

Next week, Treasury Secretary Jack Lew will make his case before the House Financial Service Committee for linking IMF reform to U.S. bilateral aid for Ukraine. If the past is any guide, he will do so by putting forward a set of disingenuous arguments in favor of his case. …The principal argument that Secretary Lew must be expected to make is that IMF quota reform is essential for large-scale IMF Ukrainian financial support. This argument glosses over the fact that under the IMF’s lending policy under “exceptional circumstances”, which has been resorted to on many occasions since the 1994 Mexican tequila crisis, the amount that the IMF can lend a country bears little relation to the size of that country’s IMF quota.  …Ukraine is reportedly currently seeking around a U.S. $15 billion IMF economic adjustment loan. If Mr. Lew were to be candid, he would inform Congress that such an amount represents only around 800 percent of Ukraine’s present IMF quota or less than half the amount of quota that the IMF recently committed to several countries in the European economic periphery. He would also inform Congress that the IMF presently has more than U.S. $400 billion in uncommitted loanable resources. This would make the IMF’s prospective loan to Ukraine but a drop in the IMF’s large bucket of available resources even without IMF reform.

Lachmann goes on to make additional points, including the fact that IMF bailouts create very real financial risks for American taxpayers.

The U.S. Treasury never tires of assuring Congress that large-scale IMF lending poses no risk to the US taxpayer. It bases its argument on the fact that the IMF enjoys preferred creditor status and that to date no major country has defaulted on its IMF loans. However, the Treasury conveniently glosses over the fact that IMF loan repayment experience with past IMF lending on a small scale might not be a good guide to what might happen on IMF loans of an unprecedentedly large scale. To understand that there now might be a real risk to the US taxpayer from IMF lending, one only need reflect on the IMF’s current Greek lending experience. Greece’s public debt is now mainly officially owned and it amounts to over 175 percent of GDP. It is far from clear that the European Central Bank will go along with the idea that the IMF enjoys senior status over the ECB in terms of Greece’s loan repayments.

His point about risks to taxpayers is right on the mark. In effect, the IMF is like Fannie Mae and Freddie Mac. For years, defenders of intervention in the housing market argued those government-created entities didn’t cost a penny. Then they suddenly cost a lot.

The same will happen with the IMF.

Lachmann closes by asking the right question, which is whether there’s any reason to expand the IMF’s authority.

I think that’s the real issue. And to answers that question, let’s go to Mark Hendrickson’s column in Forbes.

He starts by noting that the IMF has “re-invented” itself to justify its existence, even though it supposedly was created for a world – which no longer exists – of fixed exchange rates.

Bureaucracies are masters of mission creep. They constantly reinvent themselves, cleverly finding ways to expand in size, scope, power, and budget. The IMF has perfected this art, having evolved from its original purpose of trying to facilitate orderly currency exchange rates as countries recovered from World War II to morphing into a global busybody that makes loans—with significant strings attached—to bankrupt governments.

And what do we get in exchange for being the biggest backer of IMF bailouts?

What has the American taxpayer received in return for billions of dollars siphoned through the IMF to deadbeat governments? Nothing but ill will from abroad. First, the IMF’s policy of lending millions, or billions, to fiscally mismanaged governments is counterproductive: Such bailouts help to prop up inept and/or corrupt governments. Second, bailouts create moral hazard, inducing private corporations and banks to lend funds to poor credit risks, confident that IMF funds will make them whole. Third, typical IMF rescue packages demand…higher taxes in the name of balancing the budget.

It would be far better, Professor Hendrickson explains, if reckless governments had to immediately accept the market’s judgement whenever they overspent.

…it doesn’t take expert economists to figure out when a government is overspending. Markets will discipline spendthrift governments by ceasing to make funds available to them until they institute needed reforms. Without a bailout fairy like the IMF, government leaders will quickly learn that if they wish the government to remain viable, they must spend within available means. By telling governments what they “have” to do when it’s obvious they need to make those reforms anyhow, the IMF gives the recipient government a convenient scapegoat. It blames the pain of austerity on meddlesome foreigners, and since the U.S. is perceived as the real power in the IMF, we get painted as the bad guys. The bottom line: IMF use of our tax dollars buys us a ton of resentment from abroad.

He also points out that the IMF makes a habit of suggesting bad policy – even for the United States.

the IMF has waged war against American taxpayers and workers. Last October, the IMF released a paper suggesting both higher tax rates (mentioning a “revenue-maximizing” top marginal tax rate of around 60 percent) and possibly the confiscation of a sizable percentage of private assets to restore fiscal balance to the federal government. The IMF also has been one of the leading forces discouraging “tax competition” between countries. …It is using American tax dollars to lobby the American government to increase the flow of tax dollars from our Treasury to the IMF. We shouldn’t be surprised, then, that the IMF released a report on March 13 warning of the perils of “income inequality,” and suggesting tax increases and wealth redistribution as ways by which Uncle Sam might address the problem.

So what’s the bottom line?

If the IMF really wanted to improve the economic prospects of the world’s people, it would recommend reductions in government spending and taxation. Indeed, the overwhelming evidence is that vigorous economic growth is highly correlated with a country’s government shrinking as a share of GDP. What are the chances that the IMF will ever advocate such policies? Not very, as we realize that the IMF’s very existence depends on government taxes. …In a better world, there wouldn’t be an IMF. For the present, though, the best we can hope for is for enough members of Congress to understand that the IMF’s interests are opposed to those of the American people and to refuse any requests that the IMF makes for increased funding.

The Wall Street Journal is more measured in its rhetoric, but it basically comes to the same conclusion.

Republicans are reluctant to grant more leverage to European countries, which they blame for relaxing rules on Greece’s bailout in order to rescue the continent’s banks. …An internal audit last week also found that the fund’s growth forecasts were “optimistic” for countries like Greece and Ukraine that were granted larger loans under its “exceptional access” framework. Republicans fear the IMF is becoming a discount borrowing window for spendthrift governments trying to postpone reforms. IMF economic advice is often lousy—raise taxes and devalue… Congress ought to debate whether the IMF has outlived its usefulness as it evolves from a tool for Western interests into a global check-writing bureaucracy.

Amen. Which is why the United States should shut the Treasury door to the IMF. If other nations want to subsidize bad policy and promote bigger government, they can do it with their own money.

P.S. Here’s a list of other IMF transgressions against good public policy (all partially backed by American taxpayers).

Endorsing government cartels to boost tax and regulatory burdens.

Trying to undermine flat tax systems in Albania and Latvia.

Encouraging a “collective response” to over-spending in welfare states.

Pushing for higher tax burdens in Greece.

Seeking the same destructive policy in Cyprus.

Advocating for more centralization and bureaucratic rule in Europe.

Urging higher taxes in El Salvador.

Supporting “eurobonds” so that taxpayers from other nations can subsidize the profligacy of welfare states such as Greece, Italy, and Spain.

Pushing an energy tax that would mean $5,500 of added expense for the average American household.

Reflexively endorsing every possible tax increase.

Aiding and abetting Obama’s “inequality” agenda with disingenuous research.

And remember, these pampered bureaucrats get lavishly compensated and don’t have to pay tax on their bloated salaries.

P.P.S. But let’s be fair to the IMF. The bureaucrats have given us – albeit unintentionally – some very good evidence against the value-added tax.

Read Full Post »

Welcome Instapundit readers. To augment the depressing and worrisome message in this post, I suggest you read this article showing how we can restore market forces to our government-dictated healthcare system.

=============================================

I hate to dredge up bad memories so early in a new year, but we need to remind ourselves of the awful TARP bailout of 2008.

Our financial system had gone out of whack because of bad monetary policy from the Federal Reserve and unsustainable housing subsidies from Fannie Mae and Freddie Mac.

Some financial institutions gambled on the government’s misguided policies and got caught with their pants down when the bubble burst.

But rather than let those companies fail and use the sensible and non-corrupt “FDIC resolution” method to recapitalize the banking system, we got a taxpayer-to-Wall-Street bailout.

Or, from the perspective of the big banks, they got a very good return on their campaign contributions (read Kevin Williamson if you want to get upset about this disgusting form of cronyism).

Well, as Yogi Berra might say, it’s deja vu all over again.

Except now the fat cats lining up at the Treasury door are the big health insurance corporate titans. They got in bed with the White House to push Obamacare and now they’re worried about losing money now that it’s becoming more apparent that the American version of government-run healthcare doesn’t work any better than the British version.

Charles Krauthammer warns us about what may happen in his Washington Post column.

…there’s a Plan B. It’s a government bailout. Administration officials can’t say it for political reasons. And they don’t have to say it because it’s already in the Affordable Care Act, buried deep. First, Section 1341, the “reinsurance” fund collected from insurers and self-insuring employers at a nifty $63 a head. (Who do you think the cost is passed on to?) This yields about $20 billion over three years to cover losses. Then there is Section 1342, the “risk corridor” provision that mandates a major taxpayer payout covering up to 80 percent of insurance-company losses.

At this point, you may be wondering why there’s bailout language buried in the Obamacare legislation.

The simple answer is that politicians always love to accumulate power, and the insurance industry probably lobbied very hard to get this back-door access to our money.

But maybe the White House knew that Obamacare would be unstable and they needed a bailout option to keep the system from totally unraveling. Particularly when it seems that the Obama Administration is arbitrarily changing the system every other day.

First, it postponed the employer mandate. Then it exempted from the individual mandate people whose policies were canceled (by Obamacare). And for those who did join the exchanges, Health and Human Services Secretary Kathleen Sebeliusis “strongly encouraging” insurers — during the “transition” — to cover doctors and drugs not included in their clients’ plans. The insurers were stunned. Told to give free coverage. Deprived of their best customers. Forced to offer stripped-down “catastrophic” plans to people age 30 and over (contrary to the law). These dictates, complained an insurance industry spokesman, could“destabilize” the insurance market.

So what does all this mean? It’s not good news for Big Insurance.

Shrinking revenues and rising costs could bring on the “death spiral” — an unbalanced patient pool forcing huge premium increases (to restore revenue) that would further unbalance the patient pool as the young and healthy drop out. End result? Insolvency — before which the insurance companies will pull out of Obamacare. Solution? A huge government bailout. It’s Obamacare’s escape hatch. And — surprise, surprise — it’s already baked into the law.

This sounds depressing, but Krauthammer suggests that there could be a way of derailing a bailout before it begins.

…the GOP needs to act. Obamacare is a Rube Goldberg machine with hundreds of moving parts. Without viable insurance companies doing the work, it falls apart. No bailout, no Obamacare. Such a bill would be overwhelmingly popular because Americans hate fat-cat bailouts of any kind. Why should their tax dollars be spent not only saving giant insurers but also rescuing this unworkable, unbalanced, unstable, unpopular money-pit of a health-care scheme? …Do you really think vulnerable Democrats up for reelection will vote for a bailout? And who better to slay Obamacare than a Democratic Senate — liberalism repudiating its most important creation of the last 50 years. Want to be even bolder? Attach the anti-bailout bill to the debt ceiling. That and nothing else. Dare the president to stand up and say: “I’m willing to let the country default in order to preserve a massive bailout for insurance companies.” …Who can argue with no bailout? Let the Senate Democrats decide: Support the bailout and lose the Senate. Or oppose the bailout and bury Obamacare.

I hope his political judgement is correct, though I suspect the statists (and their echo chamber in the media) would portray any effort to amend the debt limit as a sore-loser attack on Obamacare.

But if it’s a simple no-bailout message, perhaps that would be sufficiently popular to overcome the political establishment. As Krauthammer points out, the legislation could be very simple: “Sections 1341 and 1342 of the Affordable Care Act are hereby repealed.”

Let’s close today’s post with some good Obamacare cartoons. We’ll start with Eric Allie’s amusing look at how the White House is measuring success.

Obamacare Cartoon Jan 2014 1

Nice gimmick, huh? You pass a law that destroys people’s existing insurance policies, then you claim victory when some of them sign up for more expensive Obamacare insurance.

Next we have Nate Beeler welcoming the new year.

Obamacare Cartoon Jan 2014 2

Chip Bok’s cartoon is somewhat optimistic in that he’s suggesting that Obamacare may unravel.

Obamacare Cartoon Jan 2014 3

And Gary Varvel mocks the moving goalposts of Obamacare.

Obamacare Cartoon Jan 2014 4

Lisa Benson congratulates the President for winning Politifact’s Lie of the Year Award.

Obamacare cartoon Jan 2014 5

Michael Ramirez hints that the President may not be in a position to enjoy his multi-million dollar Hawaiian vacation.

Obamacare Cartoon Jan 2014 6

Last but not least, Scott Stantis warns us that Obamacare violates the Hippocratic Oath about doing no harm.

Obamacare Cartoon Jan 2014 7

P.S. Under no circumstances should you feel sorry for the insurance companies. As I noted the other day, they endorsed Obamacare and actively lobbied for its passage. They deserve every bad thing that might happen to them.

P.P.S. It’s hard to find much humor in this situation, but perhaps this funny “bailout application” could be updated to make it easier for big insurance companies to rape and pillage taxpayers.

Read Full Post »

At the beginning of the year, I was asked whether Europe’s fiscal crisis was over. Showing deep thought and characteristic maturity, my response was “HAHAHAHAHAHAHAHAHA, are you ;@($&^#’% kidding me?”

But I then shared specific reasons for pessimism, including the fact that many European nations had the wrong response to the fiscal crisis. With a few exceptions (such as the Baltic nations), European governments used the crisis to impose big tax hikes, including higher income tax rates and harsher VAT rates.

Combined with the fact that Europe’s demographic outlook is rather grim, you can understand why I’m not brimming with hope for the continent. And I’ve shared specific dismal data for nations such as Portugal, France, Greece, Italy, Poland, Spain, Ireland, and the United Kingdom.

But one thing I’ve largely overlooked is the degree to which the European Central Bank may be creating an unsustainable bubble in Europe’s financial markets. I warned about using bad monetary policy to subsidize bad fiscal policy, but only once in 2011 and once in 2012.

Check out this entertaining – but worrisome – video from David McWilliams and you’ll understand why this issue demands more attention.

I’ve openly argued that the euro is not the reason that many European nations got in trouble, but it appears that Europe’s political elite may be using the euro to make a bad situation even worse.

And to add insult to injury, the narrator is probably right that we’ll get the wrong outcome when this house of cards comes tumbling down. Instead of decentralization and smaller government, we’ll get an expanded layer of government at the European level.

Or, as I call it, Germany’s dark vision for Europe.

That’s Mitchell’s Law on steroids.

P.S. Here’s a video on the five lessons America should learn from the European crisis.

P.P.S. On a lighter note, the mess in Europe has generated some amusing videos (here, here, and here), as well as a very funny set of maps.

P.P.P.S. If all this sounds familiar, that may be because the Federal Reserve in the United States could be making the same mistakes as the European Central Bank. I don’t pretend to know when and how the Fed’s easy-money policy will turn out, but I’m not overly optimistic about the final outcome. As Thomas Sowell has sagely observed, “We all make mistakes. But we don’t all have the enormous and growing power of the Federal Reserve System… In the hundred years before there was a Federal Reserve System, inflation was less than half of what it became in the hundred years after the Fed was founded.”

Read Full Post »

As illustrated by this chart, economists are lousy forecasters.

To be more specific, economists are no better than fortune tellers when trying to make short-run macroeconomic forecasts. Heck, if we actually knew what was going to happen over the next 12 months, we’d all be billionaires.

But we can (on occasion) make sensible predictions about the long-run impact of various government policies. All other things being equal, for instance, it’s safe to say that countries with bigger governments will grow slower than nations that don’t divert as many resources from the private sector. Even the World Bank and European Central Bank agree with that common-sense proposition.

Another can’t-fail prediction is that bailouts will reward bad behavior and lead to dependency. That’s why I’m not at all surprised by the news that Greece will get another bailout.Greek Bailout 1 Indeed, if there was a least-surprising-headline contest, it would go to the EU Observer for this headline.

A third bailout? You mean the first two didn’t work? I’m shocked! Which is why we need to change to a least-surprising-headlines contest, Greek Bailout 2because we also have this headline from City AM.

And this one from the UK-based Times. Which they may want to save for when it’s time for the fourth bailout. Greek Bailout 3And the fifth bailout. And…well, you get the idea.

Makes you wonder why the Germans (and the Dutch, Finns, Swedes, etc) keep subsidizing bad behavior elsewhere. Greek Bailout 4Yet these people apparently don’t care about moral hazard, so we see this headline from the Telegraph.

Last but not least, here’s what the BBC wrote. Greek Bailout 5

Given all these headlines from today, you can see why I felt safe in predicting a couple of days ago for Canadian TV that Europe was still in bad shape. Simply stated, government is far too big and costs far too much.

Yes, there are a few bright spots, such as Switzerland and the Baltic nations, but the fiscal debate in Europe is mostly between those who want higher taxes and those who want higher spending.

With that kind of contest, there are no winners other than politicians.

P.S. The ostensible purpose of the interview was to discuss Europe’s supposed recovery. I explained a few days ago why nobody should be impressed by the anemic growth on the other side of the Atlantic. But I think any changes in short-run economic performance – for better or worse – are far less important than the long-run projections of expanding government and growing dependency in Europe.

P.P.S. Americans shouldn’t feel cocky or superior. Long-run projections from the BIS, OECD, and IMF all show that the United States will be in deep trouble if we don’t engage in genuine entitlement reform.

P.P.P.S. Since I was talking to a Canadian audience, I mentioned that Europe should copy the spending restraint Canada enjoyed in the 1990s. You can click here to learn more about happened north of the border (and why the United States also should copy the same policy).

Read Full Post »

In an interview last week about Detroit’s bankruptcy, I explained that the city got in trouble because of growing dependency and an ever-rising burden of government spending.

I also warned that the federal government faces the same challenge. Washington is in trouble mostly because of poorly designed entitlement programs rather than excessive compensation for a bloated bureaucracy, but the end result is the same. Or, to be more accurate, the end result will be the same in the absence of genuine entitlement reform.

As I said in the interview, fiscal crisis was “the most predictable crisis in the world for Detroit [and] it’s the most predictable crisis for America.”

The Washington Examiner has the same assessment. Here’s how they conclude a recent editorial.

More than anywhere else in America (with the possible exception of Chicago) Detroit has been a one-party union city. Democratic politicians backed by the United Auto Workers and public employees unions have ruled virtually as they pleased. Along the way, many of the politicians ended up in jail on corruption charges and the bureaucrats made out with sweetheart deals on pensions and health benefits. Those sweetheart deals now account for most of the $20 billion in debt that put the city into bankruptcy. There are too many disturbing parallels between Detroit and America. The national debt of $17 trillion gets a lot of attention, but the reality is the government’s actual debt, counting the unfunded liabilities of Social Security, Medicare and federal employee and retiree benefits, exceeds $86 trillion, according to former congressmen Chris Cox and Bill Archer. As they say, things that can’t go on forever, won’t.

I used to warn that America was on a path to becoming Greece, but maybe now I should use Detroit as an example.

Some of America’s best political cartoonists already are using this theme.

Here’s one from Glenn McCoy. Since I’m not overly optimist about either Illinois or California, I also think it’s just a matter of time before this happens.

Detroit Cartoon 1

Keep in mind, however, that there was plenty of wasteful spending in both Illinois and California under Republican governors, so this is a bipartisan problem.

Speaking of California, here’s a good cartoon by Lisa Benson.

Detroit Cartoon 2

Amazingly, some people think California’s no longer in trouble because a retroactive tax hike collected more tax revenue. Yeah, good luck with that.

Next we have a cartoon by Rob Rogers of the Pittsburgh Post-Gazette.

Detroit Cartoon 3

And last but not least, Eric Allie weighs in with a cartoon comparing Texas and Detroit.

Detroit Cartoon 4

On a serious note, it would be interesting to see how Detroit looks compared to cities in Texas, such as Dallas and Houston.

But let’s end with something that’s really hilarious, albeit by accident rather than on purpose.

A few people want to enable Detroit’s profligacy. Here are some excerpts from a story in The Hill about union bosses wanting a federal-state bailout of Detroit.

Union leaders are calling on Congress and President Obama to provide a federal bailout to the city of Detroit. The executive council of the AFL-CIO, the nation’s largest labor federation, called for an “immediate infusion of federal assistance for Detroit” to be matched by Michigan, which they say has not done enough to keep the city from going through bankruptcy. …“It appears that Governor [Rick] Snyder and [Emergency Financial Manager] Kevyn Orr are pushing Detroit into bankruptcy to gut the modest benefits received by Detroit’s retired public service employees,” the AFL-CIO’s statement reads.

I suppose I could make some snarky comments, but I’ll close with two vaguely sympathetic responses.

First, there’s no way a bailout of Detroit goes through the House of Representatives. Heck, I don’t even think it could make it through the Senate. So some folks on the left would be justified if they asked why the high rollers on Wall Street supposedly deserved a bailout a few years ago but they don’t get one today.

The answer, of course, is discrimination by color. But I’m not talking black vs white. The color that matters in politics is green. The financial industry dispenses huge campaign contributions to both sides of the aisle, and the bailout was their payoff. Public employee unions, by contrast, give almost every penny of their money to Democrats, so there’s no incentive for GOPers to do the wrong thing.

Second, I have no idea whether retired bureaucrats in Detroit get “modest benefits.” I’m skeptical for very obvious reasons, but the real problem is that the city screwed up by having too many people riding in the wagon without paying attention to whether there were enough people producing in the private sector to pull the wagon.

Is that the fault of the garbage men, clerks, secretaries, and other municipal employees? That’s a hard question to answer. They obviously weren’t calling the shots, but they were happy to go along for the ride.

At some point, they should have paid attention to the message in this Chuck Asay cartoon.

P.S. For readers in New Jersey (and also New York City), I’ll be speaking this Wednesday, July 31, at the Friedman Day luncheon sponsored by Americans for Prosperity.

Read Full Post »

For my birthday last year, the only present I wanted was for the Supreme Court to uphold the Constitution and reject Obamacare.

Needless to say, that didn’t happen. Instead, the Chief Justice put politics above the law and made a mockery of his Oath of Office.

So I’m now a bit superstitious and I’m not going to write about anything I want today or in the future. But I will pretend that something good happened because it’s my birthday, so let’s celebrate the fact that the European Union has basically made the right decision on how to deal with insolvent banks.

Technically, it happened yesterday, the day before my birthday, but it’s being reported today, and that’s close enough for me. Here are some details from the EU Observer.

Bank shareholders and creditors will be first in line to suffer losses if their bank gets into difficulties, according to draft rules agreed by ministers in the early hours of Thursday morning… Under the new regime, banks’ creditors and shareholders would be the first to take losses. But if this proves insufficient to rescue the bank in question, savers holding uninsured deposits worth more than €100,000 would also take a hit.

This is basically the “FDIC-resolution” approach that I’ve mentioned before, and it’s sort of what happened in Cyprus (after the politicians tried every other option).

And it’s the opposite of the corrupt TARP system that the Bush and Obama Administrations imposed on the American people.

The reason this new European approach is good is that it puts the pressure for sound business decisions where it belongs – with the shareholders who own the bank and with the big creditors (such as bondholders) who should be responsible for monitoring the underlying safety and soundness of a bank before lending it money.

And rich people (depositors with more than €100,000) also should be smart enough to apply some due diligence before putting their money someplace.

The last people to bear any costs should be taxpayers. They don’t own the bank. They don’t invest in the bank. And they don’t have big bucks. So why should they bear the cost when the big-money people screw up?!? Especially when TARP-style bailouts promote moral hazard!

I’m sure the new system won’t be properly implemented, that there are some bad details in the fine print, and there will be too many opportunities for back-door bailouts and cronyism, but let’s not make the perfect the enemy of the good.

Happy Birthday to me. And such an unexpected present: Something good actually came out of Europe!

Read Full Post »

Did Cyprus become an economic basket case because it is a tax haven, as some leftists have implied?

Did it get in trouble because the government overspent, which I have suggested?

The answers to those questions are “no” and “to some degree.”

The real problem, as I explain in this interview for Voice of America, is that Cypriot banks became insolvent because they made very poor investment decisions, particularly their purchases of Greek government bonds.

A few additional points.

1. The mess in Cyprus won’t cause problems in other nations, but it may lead investors in other nation to pay closer attention to whether there are problems with the government and/or banking sector.

2. There is not a “European problem” or “euro problem.” Some nations, such as Switzerland and Estonia, have made sound decisions. Others, such as Sweden, Denmark, and Germany, are in decent shape.

3. The final outcome in Cyprus was bad, but probably less bad than other options. The final result surely was better than the corrupt TARP regime in the United States.

4. It is utterly absurd to blame tax havens for the financial crisis. That disaster was caused by mistaken decisions by politicians in Washington.

So what happens now? I fear that Cyprus is going to be like Ireland, a nation that used to have a few attractive policies but now will have a bleak future.

Read Full Post »

It doesn’t create a lot of confidence in Europe that tiny little Cyprus, with a GDP less than Vermont, is now causing immense turmoil.

Though to be more accurate, events in Cyprus aren’t causing turmoil as much as they’re causing people to examine both government finances and bank soundness in other nations. And that’s causing anxiety because folks have taken their heads out of the sand and looked at the reality of poor balance sheets.

Looking closer at the specific mess in Cyprus, an insolvent financial sector is the cause of the current crisis, though the problem is exacerbated by the fact that the government has dramatically increased the burden of government spending in recent years and therefore isn’t in a position to finance a bailout.

But that then raises the question of why Cyprus is bailing out its banks? Why not just let the banks fail?

Well, here’s where things get messy, particularly since we don’t have a lot of details. There are basically three options for dealing with financial sector insolvency.

  1. In a free market, it’s easy to understand what happens when a financial institution becomes insolvent. It goes into bankruptcy, wiping out shareholders. The institution is then liquidated and the recovered money is used to partially pay of depositors, bondholders, and other creditors based on the underlying contracts and laws.
  2. In a system with government-imposed deposit insurance, taxpayers (or bank consumers via insurance premiums) are on the hook to compensate depositors when the liquidation occurs. This is what is called the “FDIC resolution” approach in the United States.
  3. And in a system of cronyism, the government gives taxpayer money directly to the banks, which protects depositors but also bails out the shareholders and bondholders and allows the institutions to continue operating.

As far as I can determine, Cyprus wants to pick the third option, sort of akin to the corrupt TARP regime in the United States. But that approach can only work if the government has the ability to come up with the cash when banks go under.

I’m assuming, based on less-than-thorough news reports, that this is the real issue for Cyprus. It needs taxpayers elsewhere to pick up the tab so it can bail out not only depositors, but also to keep zombie banks operating and thus give some degree of aid to shareholders and bondholders as well.

But other taxpayers don’t want to give Cyprus a blank check, so they’re insisting that depositors have to take a haircut. In other words, the traditional government-imposed deposit insurance regime is being modified in an ad hoc fashion.

And this is why events in tiny Cyprus are echoing all over Europe. Folks in other nations with dodgy banks and unsound finances are realizing that their bank accounts might be vulnerable to haircuts as well.

So what should be done?

I definitely think the insolvent institution should be liquidated. The big-money people should suffer when they mismanage a bank. Shareholders should lose all their money. Then bondholders should lose their money.

Then, if a bailout is necessary, it should go only to depositors (though I’m not against the concept of giving them a “haircut” to save money for taxpayers).

But Cyprus apparently can’t afford even that option. And the same is probably true of other European nations.

In other words, there isn’t a good solution. The only potential silver lining to this dark cloud is that people are sobering up and acknowledging that the problem is widespread.

Whether that recognition leads to good policies to address the long-run imbalances – such as reductions in the burden of government spending and the implementation of pro-market reforms – remains to be seen.

Read Full Post »

Here are three common-sense principles.

  1. Higher taxes are misguided. They undermine prosperity and finance bigger government.
  2. Bailouts also are misguided. They facilitate corruption and encourage moral hazard.
  3. And international bureaucracies are misguided. They promote statism and squander money.

So what’s the “perfect storm” of bad policy?

How about when international bureaucracies offers a bailout in exchange for higher taxes?

Here are some very unpleasant details from Reuters about how the International Monetary Fund is working with other international bureaucracies to coerce Cyprus into raising taxes in order to provide a bailout.

International lenders would like Cyprus to raise its corporate tax and introduce a levy on capital gains and a financial transaction tax to ensure it can repay a euro zone bailout it asked for last year, euro zone officials said on Thursday. …One official, briefed on the talks between the International Monetary Fund, the European Central Bank and the European Commission – known as the Troika – and the new government in Nicosia, said no decisions had yet been taken on any of the taxes.

I’ve already explained that Cyprus got in trouble because government spending rose faster than the ability of the private sector to finance it.

So if the problem is that the burden of government spending is excessive, then how does it make sense to increase the corporate tax burden? To impose a capital gains tax? Or to levy a tax on financial transactions?

The answer, of course, is that it doesn’t make sense.

This is a very perverse example of Mitchell’s Law, with the pinhead bureaucrats at the IMF and elsewhere misallocating global capital on the condition that Cyprus increase an already onerous tax burden.

One bad policy leading to another bad policy. And it’s happening with our money. Something to think about the next time the fiscal pyromaniacs at the International Monetary Fund ask for additional bailout authority.

Read Full Post »

If you’re an amoral person with political connections, it’s possible to make a lot of money.

Warren Buffett lined his pockets by making a government-subsidized investment in Goldman Sachs during the financial crisis.

The rest of us suffered and he got richer, but the left seems to be okay with that perverse form of redistribution because he supports class-warfare tax hikes. Sort of like buying an indulgence in the Middle Ages.

Hey, nice work if you can get it.

But Buffett may be an amateur compared to the crony capitalists at Citigroup.

The just-confirmed Treasury Secretary Jack Lew was given a huge bonus for leaving Citigroup several years ago. Did the company give Lew a bonus because they were happy to shed his $1.1 million salary after he presided over gigantic losses at the firm’s alternative investments division?

Don’t be silly. He was showered with money specifically for leaving the company to take a “high level position with the United States government”

Again, nice work if you can get it.

But Lew’s loot is pocket change compared to the $115 million that former Clinton Treasury Secretary Robert Rubin received for helping to steer the company into financial collapse.

So is this evidence that the private sector is systematically stupid?

I wish that was the explanation.

Instead, this is tragic evidence that it’s possible to “earn” a very high return when you “invest” in cronyism.

Big Bank SubsidyAccording to the Treasury Department’s Special Inspector General, Citigroup got $45 billion of TARP handouts and $301 billion of guarantees.

Not to mention an estimated $13.4 billion subsidy thanks to the government’s too-big-to-fail policy.

Since we’re talking apples and oranges, I have no idea how to compare the value of the payments to Lew and Rubin with the value of all the handouts and subsidies that Citigroup got (and is still getting) from taxpayers.

But I do know that mere mortals like you and me don’t have a prayer of “earning” the incredibly high returns that Citigroup received by “investing” in Robert Rubin and Jack Lew.

And let’s not forget what Goldman Sachs “earned” by “investing” in the previous Treasury Secretary, Tim Geithner.

Hey, nice work if you can get it.

And you can even be absolved of your sins by supporting higher taxes! What’s not to love. You get millions of dollars that you could never earn in a genuinely capitalist economy, and all you have to do is agree to give back an extra 5 percent or so if tax rates go up.

But if you’re someone like Tim Geithner, maybe you can avoid the extra burden by cheating on your taxes. Of course, you’ll be taking a risk of having your wrist slapped if you get caught. And that can really sting for 10 seconds.

Remember, rules and laws are for the peasants, not the cronyist 1 percent.

Nice work if you can get it.

And there are lots of opportunities for unjust enrichment, as explained in this video.

The moral of the story is…well, that you should be a libertarian if you want to be a decent person and not reward those who are indecent.

P.S. At least Jack Lew has now shown us that it’s perfectly fine to invest in the Cayman Islands and benefit from tax competition.

But only if you’re an insider, of course. Nice work if you can get it.

Read Full Post »

I have a serious question for readers. What’s worse, bailouts for government or bailouts for the private sector?

Yes, both are bad, but is it worse to bail out a bankrupt entitlement program, such as Social Security, or it is worse to bail out an industry, such as the financial sector?

Bailout gravy train cartoonTo bail out the housing sector, or to bail out Medicare? Fannie and Freddie, or GM and Chrysler?

All these examples involve huge amounts of money, and both private-sector and public-sector bailouts have perverse long-run effects, but which is worse?

And don’t forget there are lots of other bailouts in our future, as discussed on this interview for Fox Business News.

The interview took place before Christmas, but the topic is even more relevant today since the budget season is about to begin.

Most of the discussion was about government agencies and programs that may get more handouts, though bailouts for the Federal Housing Administration and the Pension Benefit Guaranty Corporation would be indirect bailouts for big business and housing.

So we’d get the worst of all worlds, more government spending and more cronyism.

Or, as they call it in Washington, a win-win situation.

But I call it legal corruption.

Read Full Post »

Sometimes it’s no fun to be an economist. Or, to be more specific, it’s rather frustrating to understand Bastiat’s insight about the “seen” and the “unseen” and to always be asking “at what cost?” and “to what effect?” when politicians make inane statements.

The GM bailout is a good example. Politicians want us to believe that it was a success because the company is still in business. Heck, the Vice President’s favorite campaign statement is that “Osama bin Laden is dead and General Motors is alive

But if you’re the type of person who recognizes the importance of tradeoffs and incentives, then it’s easy to see how a political success can be an economic failure. Which is the message of this new video from the Center for Freedom and Prosperity Foundation.

This is music to my ears. I’ve been saying for years that any company can be kept afloat indefinitely with taxpayers subsidies. So if that’s the definition of success, we can party until we hit the fiscal brick wall. But that wall won’t feel good, as we can see from the fiscal chaos in Greece and other European welfare states.

But this issue involves more than just inefficient subsidies. I’m also concerned about the corruption that inevitably exists when cronyism replaces capitalism.

It’s quite likely, after all, that GM is spending lots of money on the Chevy Volt because of pressure from Washington rather than demand from consumers. And when you have a car company executive endorsing higher gas taxes, it’s reasonable to think that he’s currying favor with the political masters in DC rather than looking out for the best interests of drivers.

The GM bailout may be a win-win situation for politicians and lobbyists, but it’s a lose-lose proposition for taxpayers and the economy.

P.S. If you want some auto bailout humor, here’s a spoof on the Chevy Volt, an advertisement for the new GM Obummer, a couple of good political cartoons, and a very funny video on the Pelosi GTxi SS/RT.

Read Full Post »

I think it’s a mistake to bail out profligate governments, and I have the same skeptical attitude about bailouts for mismanaged banks and inefficient car companies.

Simply stated, bailouts reward past bad behavior and make future bad behavior more likely (what economists call moral hazard).

But some folks think government was right to put taxpayers on the hook for the sloppy decisions of private companies. Here’s the key passage in USA Today’s editorial on bailouts.

Put simply, the bailouts worked. True, in some cases the government did not do a very good job with the details, and taxpayers are out $142 billion in connection with the non-TARP takeovers of housing giants Fannie Mae and Freddie Mac. But it’s time for the economic purists and the Washington cynics to admit that government can occasionally do something positive, at least when faced with a terrifying crisis.

Well, I guess I’m one of those “economic purists” and “Washington cynics,” so I’m still holding firm to the position that the bailouts were a mistake. In my “opposing view” column, I argue that the auto bailout sets a very bad precedent.

Unfortunately, the bailout craze in the United States is a worrisome sign cronyism is taking root. In the GM/Chrysler bailout, Washington intervened in the bankruptcy process and arbitrarily tilted the playing field to help politically powerful creditors at the expense of others. …This precedent makes it more difficult to feel confident that the rule of law will be respected in the future when companies get in trouble. It also means investors will be less willing to put money into weak firms. That’s not good for workers, and not good for the economy.

If I had more space (the limit was about 350 words), I also would have dismissed the silly assertion that the auto bailout was a success. Yes, GM and Chrysler are still in business, but the worst business in the world can be kept alive with sufficiently large transfusions of taxpayer funds.

And we’re not talking small amounts. The direct cost to taxpayers presently is about $25 billion, though I noted as a postscript in this otherwise humorous post that experts like John Ransom have shown the total cost is far higher.

And here’s what I wrote about the financial sector bailouts.

The pro-bailout crowd argues that lawmakers had no choice. We had to recapitalize the financial system, they argued, to avoid another Great Depression. This is nonsense. The federal government could have used what’s known as “FDIC resolution” to take over insolvent institutions while protecting retail customers. Yes, taxpayer money still would have been involved, but shareholders, bondholders and top executives would have taken bigger losses. These relatively rich groups of people are precisely the ones who should burn their fingers when they touch hot stoves. Capitalism without bankruptcy, after all, is like religion without hell. And that’s what we got with TARP. Private profits and socialized losses are no way to operate a prosperous economy.

The part about “FDIC resolution” is critical. I’ve explained, both in a post criticizing Dick Cheney and in another post praising Paul Volcker, that policymakers didn’t face a choice of TARP vs nothing. They could have chosen the quick and simple option of giving the Federal Deposit Insurance Corporation additional authority to put insolvent banks into something akin to receivership.

Indeed, I explained in an online debate for U.S. News & World Report that the FDIC did handle the bankruptcies of both IndyMac and WaMu. And they could have used the same process for every other poorly run financial institution.

But the politicians didn’t want that approach because their rich contributors would have lost money.

I have nothing against rich people, of course, but I want them to earn money honestly.

Read Full Post »

While I often complain about government waste and stupidity, I’m not even sure what to say about this grim bit of news from Reuters.

General Motors Co sold a record number of Chevrolet Volt sedans in August — but that probably isn’t a good thing for the automaker’s bottom line. Nearly two years after the introduction of the path-breaking plug-in hybrid, GM is still losing as much as $49,000 on each Volt it builds, according to estimates provided to Reuters by industry analysts and manufacturing experts. Cheap Volt lease offers meant to drive more customers to Chevy showrooms this summer may have pushed that loss even higher. There are some Americans paying just $5,050 to drive around for two years in a vehicle that cost as much as $89,000 to produce. …The weak sales are forcing GM to idle the Detroit-Hamtramck assembly plant that makes the Chevrolet Volt for four weeks from September 17, according to plant suppliers and union sources. It is the second time GM has had to call a Volt production halt this year. GM acknowledges the Volt continues to lose money, and suggests it might not reach break even until the next-generation model is launched in about three years.

Gee, it’s almost as if everything that critics have said all along is right.

But not to worry, taxpayers are underwriting the costs. So if bigger subsidies are the price of buying support from the UAW and allowing fat-cat incompetent managers to stay on the job, that just means a bigger tab to pay for the rest of us.

How comforting.

P.S. If you’re a taxpayer and need to be cheered up, these cartoons may help.

P.P.S. This spoof video on the Volt may be even funnier.

P.P.P.S. Last but not least, Government Motors plans to build on the success of the Volt with the Obummer. It was due in 2011, but standard government incompetence has pushed back the release date.

Read Full Post »

I’ve been worried for quite some time that the European Central Bank was losing its independence, thus undermining the long-run prospects of the euro.

Well, yesterday’s announcement that the ECB would buy the dodgy debt of nations such as Spain didn’t make me feel any better.

Central banks should not be bullied into creating too much money simply because politicians are too corrupt, venal, and short-sighted to control spending.

Here is some of what Allister Heath of City A.M. wrote earlier today. He begins with a wise warning about moral hazard.

There is nothing markets love more than a good dose of monetary activism, especially when they detect a hidden bailout, so it is no wonder that traders and investors reacted so positively to Mario Draghi’s bond buying plan. …Yet generally speaking these days, the more the markets like a central bank intervention, the more I worry. This is because all too often investors are trying to get central banks – and ultimately, the taxpayer – to monetise debt to protect themselves, or because they believe that there are monetary solutions to real, structural problems. I disagree on both counts: excessive debt needs to be written off, with the cost born by the creditors, not redistributed to the taxpayers of more prudent countries or inflated away. It is right that investors should be able to make a fortune if they make a correct bet – but it is equally right that they should lose their shirt when their investment goes sour. This habit of quietly enjoying the former but loudly refusing the latter is one of the main reasons why the City’s reputation is at such a low ebb.

He then explains that the ECB shouldn’t try to mask reality.

…there is a perfectly good reason why the yields of peripheral Eurozone nations have shot up over the past year. It is because the markets have finally started to price risk properly. Higher yields on Spanish or Greek debt reflect the reality of deeply troubled, structurally uncompetitive nations… The market is sending a clear and precise signal, and warning the world that there is a major problem that needs resolution; buying vast amounts of bonds to try and distort or even entirely eliminate that signal and pretend that nothing is wrong with Europe’s weaker economies would be an absurd act of delusion.

I’m not as optimistic as Allister is in this next section, largely because the supposed conditionality will lead to the kind of fiscal gimmicks and moving goal posts that we see in Greece.

…while there are many problems with Draghi’s plans, he is actually being relatively sensible. He will not help Portugal, Ireland and Greece until they are able to access bond markets; even more importantly, Spain and Italy will need to ask for European bailout fund support, and accept the ensuing conditionality, before ECB bond-buying starts. It will theoretically be unlimited in scale but Draghi only wants to “do whatever it takes” as long as politicians toe the line. Given that they won’t, and that many countries will soon be borrowing even more, the crisis will soon flare up again. The simple reality is that the Eurozone in its current form is doomed. Draghi’s plan will buy some time, and his next one even more, as will the one after that. But eventually the size of the fiscal and competitiveness crisis, combined with voter anger in both Northern and Southern countries, will overwhelm all of his attempts at papering over the cracks. It’s just a matter of time.

But I obviously agree with his conclusion. Unless European politicians decide to reduce the burden of government spending, the continent is in deep trouble.

Last but not least, the problem in Europe is not the euro. It is the welfare state. I’m not a huge fan of the single currency, but it is way down on my list of reasons that nations such as Spain, Italy, and Greece are in trouble.

P.S. America will be in the same boat at some point in the future if we don’t reform entitlements.

P.P.S. Allister is the author of this great article explaining why tax competition and tax havens are so important and valuable in the global economy.

Read Full Post »

I’ve been against the auto bailout from the very beginning because it was a corrupt payoff to lazy corporate fat-cats and an ossified union.

And when folks on the left say the bailout is a success, I explain that any industry can be propped up with a sufficiently large injection of other people’s money.

Now we have new data on how much “other people’s money” has been diverted. It’s a big number, and it seems to get bigger each time there’s a new estimate. Here’s part of a Reuters report.

The U.S. Treasury Department has said the auto industry bailout will cost taxpayers $3.4 billion more than previously thought. Treasury now estimates the 2009 bailout will eventually cost the government $25.1 billion, according to a report sent to Congress on Friday. That is up from the last quarterly estimate of $21.7 billion.

Sort of reminds me of the old joke about the lousy businessman who says he loses money on every sale, but he makes up for it with high volume.

Well, that incompetent businessman has a kindred spirit in the White House. Here’s some of what Politico reported.

President Obama, while villifying Mitt Romney for opposing the auto industry bailout, bragged about the success of his decision to provide government assistance… he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry…”

Well, we can’t say we haven’t been warned. He wants to do the same thing in “every industry.” Well, according to the Bureau of Economic Analysis, there are 60 industries in America. At $25 billion each, that means $1.5 trillion.

Stimulus in action

By the way, Mickey Kaus explains that the government’s numbers are incomplete and that the actual damage is significantly higher. And this Reason TV video exposes some of the government’s chicanery.

P.S. If you’re in the mood for some satire, here’s a bailout form showing how you can become a deadbeat and mooch off the government.

P.P.S. Just in case you’re new to this blog and don’t know my history, rest assured that I’m also against Wall Street bailouts.

P.P.P.S. Ethical people should boycott GM and Chrysler, particularly since these companies are now handmaidens of big government.

Read Full Post »

I’ve written many times about the foolishness of bailing out profligate governments (or, for that matter, mismanaged banks and inefficient car companies).

Bailouts reward bad past behavior, encourage bad future behavior, and make the debt bubble bigger – thus increasing the likelihood of deeper economic problems. At the risk of stating the obvious, there’s a reason for the second word in the “moral hazard” phrase.

But I’m not surprised that politicians continue to advocate more bailouts. The latest version is the “eurobond,” sometimes referred to as “fiscal liability sharing.”

It doesn’t matter what it’s called, though, since we’re talking about the foolish idea of having Germany (with a few other small nations chipping in) guaranteeing the debt of Europe’s collapsing welfare states. Here’s how the New York Times described the issue.

When European leaders meet on Wednesday to discuss the troubles of the euro zone, France’s president will press the issue of euro bonds, his finance minister said in Berlin on Monday. …Pierre Moscovici, France’s newly appointed finance minister, traveled to Berlin for talks with his counterpart, Wolfgang Schäuble. In a news conference after the closed-door meeting, both characterized the exchange as friendly and productive, but Mr. Moscovici acknowledged that the two men, and their governments, had real differences of opinion over pooling obligations to use the credit of the strongest European countries to prop up the weaker ones, an approach achieved through euro bonds.

The good news is that the German government is opposed to this idea.

Steffen Kampeter, was much more forthcoming in reiterating German opposition to any such proposal. Mr. Kampeter called the joint bonds “a prescription at the wrong time with the wrong side effects,” in an interview with German public radio. “The government has repeatedly made clear that collective state borrowing — that is, euro bonds — are no way to overcome the current crisis,” said Georg Streiter, a spokesman for Ms. Merkel on Monday. “It is still the case that the government rejects euro bonds.” …German policy makers say, euro bonds would be comparable to the United States’ agreeing to pay off Mexico’s debts, almost like a blank check for nations that are in trouble for overspending in the first place. “Euro bonds are not where the keys to heaven lie,” said Michael Hüther, director of the Cologne Institute for Economic Research, because it would “mix up risk” and act as a disincentive for less competitive economies to reform.

The bad news is that the Germans support other bad policies instead.

Ms. Merkel has signaled flexibility on some of Mr. Hollande’s ideas, including more financing for the European Investment Bank and redirecting unspent European Union funds to try to fight unemployment.

And even when Merkel opposes bad policies, she indicates she will change her mind if one bad policy is mixed with another bad policy!

…the German government is staunchly opposed to euro bonds until deeper integration and harmonization of budgetary and public spending policies have been achieved.

If Ms. Merkel genuinely believes that political and fiscal union will solve Europe’s problems, she’s probably ingesting illegal substances. Centralization of European government will have the same unfortunate pro-statist impact as centralization of American government in the 1930s and 1960s.

Integration and harmonization simply means voters in the rest of Europe will take German funds using the ballot box.

Not surprisingly, all of the international bureaucracies are on the wrong side of this issue. The NY Times story notes that the European Commission is using the fiscal crisis to push for more centralization.

The European Commission floated the idea of bonds issued jointly by euro zone governments in November, suggesting that such “stability bonds” could be created “in parallel” with moves toward closer fiscal union, rather than at the end of the process, as the German government prefers, to “alleviate tension” in sovereign debt markets. “From an economic point of view this makes sense,” a commission spokesman, Amadeu Altafaj, said Monday. “But at the end of the day this is a political decision that has to be taken by the member states of the euro area.” Mr. Altafaj added that “any form of common debt issuance requires a closer coordination of fiscal policies, moving toward a fiscal union, it is a prerequisite.”

And the Financial Times reports that the Organization for Economic Cooperation and Development, which is reflexively supportive of bigger government and more intervention, has endorsed eurobonds.

Mr Hollande…won backing from the OECD, which in its twice-yearly economic outlook specifically called for such bonds…“We need to get on the path towards the issuance of euro bonds sooner rather than later,” Pier Carlo Padoan, the OECD chief economist, told the Financial Times.

The fiscal pyromaniacs at the IMF also are pushing to make the debt bubble bigger according to the FT.

Christine Lagarde, the IMF chief, also called for more burden-sharing. Though she stopped short of explicitly backing euro bonds, she said “more needs to be done, particularly by way of fiscal liability sharing” – a thinly veiled reference to such debt instruments.

What makes this particularly frustrating is that American taxpayers provide the largest share of the subsidies that keep the IMF and OECD afloat. In other words, we’re paying for left-wing bureaucrats, who then turn around and push for bad policies that will result in bigger bailouts in the future.

Episodes like this make me understand why so many people believe in conspiracy theories. Folks watch something like this unfold and they can’t help but suspect that people in these governments and international bureaucracies want to deliberately destroy the global economy.

But as I’ve noted before, it’s not smart to believe conspiracies when corruption, incompetence, politics, ideology, greed, and self-interest provide better explanations for bad policy.

If the Europeans want to hit the self-destruct button, I’m happy to explain why it’s a bad idea, and I’m willing to educate them about better alternatives.

But I damn sure don’t want to subsidize their foolishness when they do the wrong thing.

P.S. It’s very appropriate to close this post with a link to this parody of Hitler complaining about debt crisis.

Read Full Post »

Today’s a big day in European politics. French voters are going to the polls to decide the fate of Nicolas Sarkozy, the socialist incumbent. I’ve endorsed Francois Hollande, the Socialist challenger, so I’m curious to see what will happen.

The more important contest, though, is in Greece. Voters are electing a new Parliament, and it will be interesting to see whether the two establishment parties (both of which are statist, of course) hold on to power.

The looters and moochers that comprise the Greek electorate are in a pissy mood and may opt for various protest parties.

That’s not too surprising, but the press coverage of the election is a bit surreal.

An article in the EU Observer is entitled “Greek elections to usher in anti-bail-out parties,” and the opening paragraph echoes this title, implying that Greek voters don’t like bailouts.

 Greece’s two main parties are set for heavy losses in Sunday’s (6 May) elections, with anti-bail-out groups on the extreme left and right to enter parliament for the first time, raising again the prospect of an exit from the eurozone.

There’s just one tiny problem with the both the title of the first paragraph. Contrary to what’s written, the new political parties are pro-bailout. They are quite happy to mooch off German taxpayers, American taxpayers, and anyone else who is stupid enough to send money (after all, somebody has to finance critical functions of government, such as collecting stool samples from people who want to set up online companies and subsidizing pedophiles).

What gets them upset is the notion that they should do anything in exchange for these handouts. Perish the thought!

If the media had any brains (I don’t think this is a case of ideological bias), they would change the title from “Greek elections to usher in anti-bail-out parties” to “Greek elections to usher in anti-conditionality parties.” Or something like that.

I actually hope these anti-conditionality parties prevail. Because if they get power and say that they won’t do anything to fix Greece’s budget, maybe the fiscal pyromaniacs at the International Monetary Fund and elsewhere will finally stop the bailouts.

Which is what I said was the right approach way back when the crisis began. So maybe after every other option is exhausted, the right thing will finally happen. Hope springs eternal.

Read Full Post »

I’ve been having fun in recent months by comparing some of the foolish decisions of politicians and bureaucrats in the United States and United Kingdom. Here’s part of what I wrote in early January.

In June of last year, I posted several examples of idiotic government policy from both the United States and United Kingdom and asked which nation had the dumbest bureaucrats and politicians.

Since then, we have found new examples of brain-dead government and jaw-dropping political correctness from England, including an effort to stop children from watching Olympic shooting events and (what must be) the most pointless sign in the history of the world.

But American politicians have been busy as well in recent months, with impressive displays of incompetence and stupidity such as preventing a girl from boarding a plane because her purse had an image of a gun and a local school calling the police because a little girl kissed a little boy in gym class.

These examples are so absurd that one hopes the reporters somehow screwed up and get their stories wrong.

But now, thanks to a story sent by a friend, I’ve come to the conclusion that there is no limit to stupid and clueless behavior by government.  Here are some of the mind-bogglingly unbelievable details from an English-language Greek news site.

It took 10 months, a fat bundle of paperwork, countless certificates, long hours of haggling with bureaucrats and overcoming myriad other inconceivable obstacles for one group of young entrepreneurs to open an online store. …opening an online store based in Greece is no job for the fainthearted. …Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.

As you can imagine, I think it’s ridiculous that a business has to take 10 months to get permission to operate. You also can guess that I’m shaking my head with dismay at all the regulatory hurdles. And I am utterly dumbfounded that you need to submit chest X-rays to open an online store.

But I can’t even begin to describe my reaction to the requirement for stool samples. I was tempted to write the previous sentence in ALL CAPS. I also thought about unleashing my inner teenager and writing WTF, OMG, and LMAO.

New Symbol of the Greek Government?

I confess, though, that I’m not quite sure what to write. It’s as if we’ve passed into a parallel dimension where parody and satire have become superfluous.

The only thing that rivals this is the story about the Greek government deciding that pedophiles deserve disability payments.

And to add insult to injury, the politicians from Europe and elsewhere are processing yet another bailout for this wasteful and spendthrift government.

Some people thought I was being a bit over-the-top when I did an interview and said the Greeks shouldn’t be allowed to “loot and mooch their way through life.”

But I think I understated the problem. Brainless policy choices are probably the inevitable result of having so many bureaucrats that they resort to asking for stool samples to justify their pointless and empty lives.

Read Full Post »

There’s always been a simple and desirable solution to Europe’s fiscal crisis, but nobody in Europe wants to do the right thing because it means admitting the failure of big government and it would result in less power for the political elite.

So we get the spectacle of never-ending emergency summits as the political class blindly searches for some magical solution. Not surprisingly, the “solution” concocted by the latest gathering is not getting good reviews.

Here’s what Ambrose Evans-Pritchard wrote in the Daily Telegraph.

What remarkable petulance and stupidity. The leaders of France and Germany have more or less bulldozed Britain out of the European Union for the sake of a treaty that offers absolutely no solution to the crisis at hand, or indeed any future crisis. It is EU institutional chair shuffling at its worst, with venom for good measure. …There is no shared debt issuance, no fiscal transfers, no move to an EU Treasury, no banking licence for the ESM rescue fund, and no change in the mandate of the European Central Bank.

And here’s what Felix Salmon wrote for Reuters.

It all adds up to one of the most disastrous summits imaginable. A continent which has risen to multiple occasions over the past 66 years has, in 2011, decided to implode in a spectacle of pathetic ignominy. …Europe’s leaders have set a course which leads directly to a gruesome global recession, before we’ve even recovered from the last one. Europe can’t afford that; America can’t afford that; the world can’t afford that. But the hopes of arriving anywhere else have never been dimmer.

So why is everybody upset? For the simple reason that the supposed “solution” doesn’t address the immediate problem.

Europe’s short-run crisis is that the fear of default. Simply stated, governments have squandered so much money that they are now deeply in debt. As a result, investors no longer trust that they will get paid back (either on time or in full) if they buy bonds from various governments.

This is why interest rates on government debt are climbing and nations such as Greece, Ireland, and Portugal already have received direct bailouts. Moreover, the European Central Bank has been engaging in indirect bailouts of other welfare states such as Spain and Italy.

But these direct and indirect bailouts have simply made the debt bubble bigger.

Yet the new agreement from Europe’s political elite doesn’t deal with this crisis. Simply stated, there is no short-run bailout strategy, not even one that kicks the can down the road.

There are only four ways of dealing with the mess in Europe, one good and three bad.

1. No bailouts, thus forcing nations to do the right thing (like the Baltics) or letting them default. This imposes the costs on the people who created the mess, addresses the short-run crisis, and promotes good long-run policy.

2. Crank up the proverbial printing presses and have the European Central Bank buy up most of Europe’s dodgy debt. This imposes the costs on all consumers, addresses the short-run crisis, and promotes bad long-run policy.

3. Have the Germans (and some other northern Europeans) guarantee the debt of the less-stable welfare states, either through Euro-bonds or some other mechanism. This imposes the costs on taxpayers in Germany and other nations that have been more prudent, addresses the short-run crisis, and promotes bad long-run policy.

4. Have the Americans and the rest of the world bail out Europe’s welfare states via the International Monetary Fund. This imposes the costs on the entire world (with U.S. taxpayers picking up the biggest part of the tab), addresses the short-run crisis, and promotes bad long-run policy.

In a remarkable display of ignoring the elephant in the middle of the room, none of these options was selected.

Some people claim that the third option was used, but that’s whistling past the graveyard. Yes, there will be a €500 billion bail-out fund called the European Stability Mechanism at some point next year, but that simply replaces the current €440 billion European Financial Stability Facility. And nobody thinks the third option will be successful unless there is a multi-trillion euro bailout fund.

So if Europe’s politicians didn’t agree to deal with the problem, either with good policy or bad policy, what exactly did they do?

The agreement uses the short-run fiscal crisis as an excuse to propose permanent changes that will erode national sovereignty and impose more centralization, more harmonization, and more bureaucratization.

One can argue, though not very persuasively, that these changes will reduce the likelihood of fiscal crises in the future. But that’s not the same thing as coming up with a policy – good or bad – to deal with the immediate problem.

I’m not an expert on investing money, but I definitely won’t be surprised if financial markets (including the investors who want bad policy so they can be bailed out) react negatively to this latest faux agreement.

Read Full Post »

As demonstrated by the new video from the Center for Freedom and Prosperity, there are five key lessons to learn from the fiscal crisis in Europe.

Unfortunately, Europe’s despicable political class has not learned from their mistakes. They are not taking the simple and obvious steps that are needed to address the problems of spendthrift governments.

Instead, they want to compound bad fiscal policy with bad monetary policy by having the European Central Bank purchase even more bonds issued by the continent’s most decrepit welfare states.

I warned last year that this was a big mistake and I’m glad to see that the issue is now getting more attention. Here’s some of what the Wall Street Journal said in an editorial this morning.

Only weeks into his new job as president of the European Central Bank, the Italian is being portrayed along with German Chancellor Angela Merkel as the main—the only—obstacle to saving the euro zone. If only the ECB would print a few trillion euros to buy the debt of spendthrift European countries, all will be well. Hang in there, Mr. Draghi, and you too, Chancellor. Don’t let the French, the British and the Yanks, the euro-pundits and the other blabbering bullies for bailouts get you down. Someone needs to defend the principle of central bank independence and price stability. The ECB has been by far the most effective part of the euro system since its founding. It shouldn’t squander that legacy now by taking on the debts of spendthrift governments that are the real cause of this crisis. It’s true that the ECB has already become a little bit pregnant in buying sovereign bonds, first taking on Greek, Irish and Portuguese debt, and this summer Spanish and Italian bonds. A week ago Friday, the ECB held €187 billion worth of country bonds. …So far, the ECB’s bond purchases have been limited enough that the central bank has been able to “sterilize” them, meaning they are offset by withdrawing money elsewhere in the banking system and haven’t added to the overall supply of money. But a multitrillion euro program would make sterilization impossible and would become a money-printing exercise. …If the Germans and ECB do write a blank check, then the balance of power within the euro zone will shift markedly, and perhaps irreversibly, in favor of the spenders. Even if this prevented short-term panic, it would merely postpone the day of reckoning and leave Europe worse off in the medium and long term. Without a system that can enforce spending restraint, borrowing discipline and economic reform, all the ECB bond-buying in the world won’t save the euro, and the independence of the ECB itself will become another casualty of the crisis.

The mess in Europe is like a slow-motion train wreck. It’s easy to see it won’t work, but that doesn’t stop the politicians from doing the wrong thing.

Indeed, I predicted most of the bad policies. But it doesn’t require much insight to know that statism won’t work, as I acknowledged in my I-told-you-so post.

Read Full Post »

Almost two years ago, I wrote that bailing out Greece was misguided because it would dig the debt hole deeper.

More recently, I wrote an I-told-you-so post that looked at my four original predictions and patted myself on the back for being accurate (not that it took any special insight to conclude that bailouts would make things worse).

But now it’s time for a turbo-charged I-told-you-so post. The UK-based Telegraph has a remarkable story about the chaos in Europe. This passage is a good summary of the circular firing squad.

Just when the eurozone governments thought it could not get worse for Europe’s single currency, it did.Shell-shocked EU finance ministers meeting in Brussels on Saturday were already reeling from the worst Franco-German rift for over 20 years and a fractious failure to resolve the problems that have brought Greece, and the euro, close to the brink.But then a new bombshell hit as a joint report by the EU and the International Monetary Fund (IMF) warned that, without a default, the Greek debt crisis alone could swallow the eurozone’s entire €440 billion bailout fund – leaving nothing to spare to help the affected banks of Italy, Spain or France.

And to understand how the situation is so dire, here are some additional details.

Compounding the trauma, Christine Lagarde, the French finance minister turned IMF chief – and one of the few key players who appeared to be enjoying herself in her new headmistress-like role – issued a grim warning to her former European peers. The IMF would no longer be willing to pick up a third of the total bill for rescuing Greece, a contribution worth €73 billion, unless European banks were prepared to write off 50 per cent of Greek debt. “It was grim. The worst mood I have ever seen, a complete mess,” said one eurozone finance minister.

But here’s the key passage of the entire article, where the German Finance Minister correctly complains that the crisis is now three times as costly thanks to previous bailouts.

According to insiders, Wolfgang Schaeuble, Germany’s finance minister, could not resist taking an “I told you so” approach – he had been, after all, the first to call for an “orderly” default for Greece 18 months ago, at a time when the cost of such a move was less than one third of the price today. “Schaeuble is a man who does not mince his words, whose reputation for harshness and arrogance is well earned. He was, frankly, unbearable,” said one diplomat.

This is similar to the point I made in my post about whether the bailouts would work. But as I noted above, there was nothing profound about my predictions. Sort of like predicting water runs downhill.

The amusing part of the story is the infighting among Europe’s politicians.

Interpersonal relations between eurozone leaders have hit an all-time low, reflecting sharp disagreements between Germany and France over using the ECB to bailout the euro and presenting an additional obstacle to finding a “grand solution” to Europe’s debt crisis. Nicolas Sarkozy’s “two faced” personality has been cited as a major factor in his dysfunctional relationship with Angela Merkel. …A row between the pair in Frankfurt on Wednesday overshadowed leaving-do celebrations to mark the end of Jean-Claude Trichet’s nine years as the head of the ECB. “Their shouting could be heard down the corridor in the concert hall where an orchestra was about to play the EU’s anthem, Ode to Joy,” said an incredulous EU official.

And the depressing part of the story is how one of the chief Euro-crats is trying to use the crisis as an excuse for more centralization in Brussels.

Herman Van Rompuy, the EU president who is regarded by many as too close to Berlin, angered many countries when he made confidential proposals for the creation of a European finance ministry. His plan, which has considerable backing from the growing body of EU bureaucrats who see a unified EU treasury as the only solution to the problem of countries spending more than the euro can stand, would mean a centralised body able to override national budgets and enforce cuts on profligate governments.

I doubt this terrible idea will be approved, but the final outcome won’t be pleasant.

The worst-case scenario is that American taxpayers somehow will get suckered into participating in a bailout. The Senate has voted against subsidizing the failure of European socialism, but Obama has said he wants American taxpayers to participate in a bailout and the White House may use the Fed or some back-door mechanism to unilaterally link America to Europe’s sinking ship.

Read Full Post »

I’m not an expert on addiction, but it’s probably safe to assume that one would never treat an alcoholic by giving him more booze. Or treat an addict by giving him more drugs.

So you won’t be surprised to learn that I’m opposed to bailouts. I’m against bailing out banks. I’m against bailing out car companies. I’m against bailing out governments.

And I’m against bailing out international bureaucracies that are running short on cash because they’ve been busy engaging in bailouts, which is the point I make in this Fox News interview.

I wish there was more time in the interview to expand on the issue of corrupt investors and financial institutions that love to make big profits when a bubble is expanding, but want handouts, subsidies, and bailouts when a bubble bursts.

This is why short-term blips in the stock market are not necessarily a good indicator of the economy’s long-run health.

Another point worth making is that failure is (or should be) part of the market process. One of my favorite lines, which I should have used in the interview, is that “capitalism without bankruptcy is like religion without hell.”

Read Full Post »

I’ll start with an important caveat and state that Ford is far from a perfect company. It has its snout in the trough for boondoggles such as green energy programs. And it happily benefits from protectionist restrictions on foreign pickup trucks and SUVs.

That having been said, there is an enormous difference between Ford, which did not get bailout cash, and the moochers and looters at GM and Chrysler. Which is why I said on TV last year that all ethical people should boycott the latter two companies.

And I’m very proud that other Americans feel the same way. Here are some excerpts from a story in the UK-based Daily Mail.

The Rasmussen Poll asked likely voters: “Have You or Anyone in Family Bought Car from Ford Because Didn’t Take Government Bailout?” 19% said yes, including 33% of the people 18-29 — and 28% of black voters — and 32% of government workers. …25% said yes when asked “Has Bailout and Government Takeover of GM Caused You or Anyone You Know to Avoid Buying GM Car?” …Rasmussen also asked: “Does Fact that GM Took Bailout Money Make You More/Less Likely to Buy GM Car?” 50% said less likely — just 4% said more likely. To the question “Ford Didn’t Take Bailout Funding. Make You More/Less Likely to Buy from Ford?” — 51% said more likely and 12% said less likely.

Here is an ad that Ford apparently is not using anymore because of pressure from the Obama Administration. But please share this link so more people can see it. Kudos to Chris, a patriot in the finest sense.

By the way, some statists are arguing that the bailouts are a success because GM and Chrysler are still alive. But as I’ve explained before, any money-losing entity can be kept alive in perpetuity (or at least ’til the point of Greek-style collapse) by raping and pillaging taxpayers.

Read Full Post »

This is either frightening or hilarious. The people in Washington who are trying to make America more like Europe are advising the Europeans to double-down on the awful policies that have pushed the continent’s welfare states to insolvency.

Here are some of the surreal details from a CNBC report.

Treasury Secretary Timothy Geithner will take the unprecedented step of attending a meeting of EU finance ministers in Poland on Friday. It will be his second trip to Europe in a week after he met his main EU counterparts at a G7 meeting last weekend. Obama said that while Greece is the immediate concern, an even bigger problem is what may happen should markets keep attacking the larger economies of Spain and Italy. “In the end the big countries in Europe, the leaders in Europe must meet and take a decision on how to coordinate monetary integration with more effective co-ordinated fiscal policy,” the news agency EFE quoted him as saying. Geithner is likely to urge euro zone finance ministers on Friday to speed up ratification of changes to their bailout fund and consider boosting its size, an EU source said. …Obama’s comments suggested that Washington is trying to nudge European governments toward closer fiscal union or a bigger bailout fund to recapitalize teetering banks but European politics, especially in Germany, make that difficult.

Your eyes are not deceiving you. Obama and Geithner want more bailouts, which will simply encourage more profligacy. And the President even endorsed more harmonization of economic policy, which will exacerbate the problems in Europe by leading to higher taxes, more spending, and additional regulation.

But you have to give Obama and Geithner credit. They support the same bad policies on both sides of the Atlantic Ocean.

Obama, however, is not fully consistent in his beliefs. During a visit to Africa, he said, “No business wants to invest in a place where government skims 20 percent off the top.” But I guess bigger government is okay in Europe, where the burden of government is already 50 percent of economic output.

Read Full Post »

Last year, after seeing former Treasury Secretary Hank Paulson trying to defend the TARP bailout he designed, I wrote that he should go away in shame.

After all, even former Fed Chairman Paul Volcker recognized there was a much better, non-corrupt, way of recapitalizing the financial sector – what is known as FDIC resolution.

I’m now even more disappointed that the former Vice President, Dick Cheney, defended the TARP bailout in his memoirs.

Former Vice President Dick Cheney anticipated the conservative uproar over the 2008 Wall Street rescue package, and he writes in his new memoir that the Bush administration “briefly” considered not seeking congressional authorization for the $700 billion bank bailout. …The former vice president writes that he signed on immediately to the plan devised by Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke, despite his reservations about the intense government intervention into the financial sector. “There was no other option,” Cheney writes in the memoir, In My Time.

But Cheney is completely wrong. There was another option. The FDIC-resolution approach, which was basically how the government handled the S&L crisis about 20 years ago, was the right policy.

And I must have talked to about 10 people in the Bush Administration in September 2008, trying to get them to go with that approach.

I was told that wasn’t possible since congressional approval would have been needed to increase the FDIC’s financial resources. Knowing that the White House was going to ask for something (and fearing they would do something really bad), I responded that they should seek that authority.

As was usual during the Bush years, my fears were justified. My advice was ignored and the Administration chose the corrupt and damaging approach – an approach the Obama Administration has happily continued.

Read Full Post »

In a recent post, I explained some of the reasons why Greece should not get another bailout. I cover some of the same points in this Bloomberg interview, but my favorite part is when I state that it’s time for the Greek people to realize “they can’t loot and mooch their way through life.”

I also pontificate about the appointment of another pro-welfare state French politician to head the IMF. Not surprisingly, I’m not sanguine about the prospects.

Read Full Post »

The notion that American taxpayers are about to subsidize another Greek bailout (via the Keystone Cops at the IMF) is way beyond economically foolish. It is also morally offensive.

To turn Winston Churchill’s famous quote upside down: “Never have so many paid so much to subsidize such an undeserving few.”

Let’s start with a few facts:

    o Greece’s GDP is roughly equal to the GDP of Maryland.

    o Greece’s population is roughly equal to the population of Ohio.

    o Despite that small size, in both terms of population and economic output, Greece already has received a bailout of about $150 billion (actual amount fluctuates with the exchange rate).

    o Don’t forget the indirect bailout resulting from purchases of Greek government bonds by the European Central Bank.

    o Now Greece is angling for another bailout of about $150 billion.

Is there any possible justification for throwing good money after bad with another bailout. Well, if you’re a politician from Germany or France and your big banks (i.e., some of your major campaign contributors) foolishly bought lots of government bonds from Greece, the answer might be yes. After all, screwing taxpayers to benefit insiders is a longstanding tradition in Europe.

But from a taxpayer perspective, either in Europe or the United States, the answer is no. Or, to be more technical and scientific, the answer is “Hell no, are you friggin’ out of your mind?!?”

Consider these fun facts from a recent column by John Lott and then decide whether the corrupt politicians of Greece (and the special interest groups that receive handouts and subsidies from the Greek government) deserve to have their hands in the pockets of American taxpayers.

Despite Greece’s promises, government spending is up over last year’s already bloated levels, the deficit is bigger than ever, and it has utterly failed to meet the promised sell-off of some government assets. Not a single public bureaucrat has been laid off so far. …Greece can pay off €300 of the €347 billion debt by selling off shares the government owns in publicly traded companies and much of its real estate holdings. The government owns stock in casinos, hotels, resorts, railways, docks, as well as utilities providing electricity and water. But Greek unions fiercely oppose even partial privatizations. Rolling blackouts are promised this week to dissuade the government from selling of even 17 percent of its stake in the Public Power Corporation. …Greeks apparently believe that they have Europe and the world over a barrel, that they can make the rest of the world pay their bills by threatening to default. Greece’s default would be painful for everyone, but for Europe and the United States, indeed for the world, the alternative would be even worse. If politicians in Ireland, Portugal, Spain, Italy, and other countries think that their bills will be picked up by taxpayers in other countries, they won’t control their spending and they won’t sell off assets to pay off these debts. Countries such as Greece have to be convinced that they will bear a real cost if they don’t fix their financial houses while they still have the assets to cover their debts. …The real problem is the incentives we are giving to other countries. We have to make sure that “Kicking the can down the road” isn’t an option.

Just for good measure, here are a few more interesting factoids in a Wall Street Journal column by Holman Jenkins.

[Greece is] one of the most corrupt, crony-ridden, patronage-ridden, inefficient, silly economies in Christendom. …The state railroad maintains a payroll four times larger than its ticket sales. When a military officer dies, his pension continues for his unwed daughter as long as she remains unwed. Various workers are allowed to retire with a full state pension at age 45.

To be blunt, Greek politicians have miserably failed. Wait, that’s not right. You can’t say someone has failed when they haven’t even tried. Let’s be more accurate and say that Greek politicians have succeeded. They have scammed money from taxpayers in other nations to prop up a venal and corrupt system of patronage and spoils. Sure, they’ve made a few cosmetic changes and trimmed around the edges, but handouts from abroad have enabled them to perpetuate a bloated state. And now they’re using a perverse form of blackmail (aided and abetted by big banks) to seek even more money.

    Let’s now re-ask the earlier question: Should American taxpayer finance the corrupt big-government policies of Greece?

    Or perhaps we should think like economists, so let’s rephrase the question: Should we misallocate capital so that funds are diverted from private investment to corrupt Greek politicians?

    Or maybe we should think like parents who have to worry about spoiling a child and the signal that sends to the other kids, so let’s ask the question this way: Should we encourage bad behavior in Spain, Italy, Portugal, etc, by giving another bailout to Greece’s corrupt politicians?

    Or should we think about this issue from the perspective of addiction counselors and rephrase the question: Should we reward self-destructive behavior by providing more money to corrupt political elites in Greece?

    Or how about we think like moral human beings, and ask the real question: Should we take money from people who earned it and give it to people who think they are entitled to live at the expense of others?

Since we paraphrased Churchill earlier, let’s answer these questions by butchering Shakespeare: “A bailout from every angle would smell to high Heaven.”

I wrote back in February of 2010 that a Greek bailout would be a mistake and every development since that time has confirmed that initial commentary.

But that doesn’t matter. Politicians have a different way of looking at things. They look at a policy and wonder whether it increases their power and generates campaign contributions. And when you understand their motives, you begin to realize why they will answer yes to the previous set of questions.

Read Full Post »

Ben Bernanke is definitely trying hard to overtake Arthur Burns and G. William Miller (those wonderful guys who helped give us the 1970s) as the worst Fed Chairman of the modern era. But unlike Burns and Miller, who “earned” their poor reputations with bad monetary policy, Bernanke is trying to cement his place in history by being a stooge for the big-government policies of the Washington establishment (he also is getting lots of criticism for QE2 and other monetary policy actions, but let’s give Bernanke the benefit of the doubt and assume all those decisions will somehow work out for the best).

Bernanke frequently pontificates about the supposed horrors of deficits and debt (I write “supposed” because the real problem is spending, with red ink being a symptom of a government that is far too large). Yet he endorsed Obama’s failed stimulus. He’s also asserted that reducing the burden of government spending would hurt the economy. And he was an avid supporter of the TARP bailout.

Now he’s trying to discourage GOPers from seeking budgetary savings as part of a proposed increase in the debt limit. Here’s a blurb from the AP report.

Federal Reserve Chairman Ben Bernanke on Tuesday urged Republicans to support raising the nation’s borrowing limit. He said threatening to block the increase to gain deeper federal spending cuts could backfire and worsen the economy. Even a short delay in making payments on the nation’s debt would cause severe disruptions in financial markets, damage the dollar and raise serious doubts about the nation’s creditworthiness, Bernanke said.

By the way, I’ve previously debunked Bernanke’s demagoguery about disrupted financial markets. The federal government this year will collect 10 times as much revenue as needed to service the national debt.

Let’s close with a thought experiment. What do you think Bernanke would say if Senate Republicans got suckered into a tax increase and that tax hike was attached to a debt limit, but House GOPers were refusing to go along? It’s just a guess, of course, but I’m quite confident that Bernanke would completely reverse his position about the debt limit and suddenly say something like “it is critical to include such a measure to demonstrate seriousness about fixing the fiscal mess in DC.”

What it would actually demonstrate, though, is that Bernanke is a tool for big government.

Read Full Post »

I’ve finally set up a youtube page for my TV interviews. Here’s my discussion with Judge Napolitano about crony capitalism, General Motors, and the bizarre case of a car company CEO endorsing an increase in the gas tax.

The most important point of the interview, at least I hope, is that companies get corrupted and housebroken when they receive handouts, subsidies, and bailouts. And since this is becoming more common, it means America is in danger of becoming another Argentina.

Read Full Post »

Older Posts »

Follow

Get every new post delivered to your Inbox.

Join 2,317 other followers

%d bloggers like this: