financial crisis

The financial crisis is beyond my ken, I freely admit.  When the complexities grow too much for the layman, though, I find it useful to remind myself of the basic realities of government.

The government is not responsible with your money.

Four years ago, privatization of Social Security was scuttled in large part because Congress thought it unfair to toss the average taxpayer into the volatile marketplace with his/her retirement savings.  Now, the government is forcing us all to participate in the financial markets, but only allowing us to invest in the worst assets.  Just great.

Government solutions tend to create new problems, which demand new government solutions, which create new problems to be solved, etc, ad nauseam (i.e., Government solutions tend to create problems so big that only government can solve them).

And with all this current talk of making the bad actors pay for their sins, you'll notice that no one is talking about changing the government's policies that caused this. It's never the government's fault, apparently. They only create the incentives. And hold a gun to the banks head to comply with them. But they don't actually, you know, sign the mortgage papers, so they're in the clear. They can just point at the bankers and say, "It's the greedy capitalists, man!"

Politicians are bipartisan in only one respect: they all act to maximize their own utility (which only partially intersects with that of the public).

Pelosi screwed up royally.  She is the Democratic Tom DeLay.  Newt Gingrich was an ideologue, but Tom DeLay was simply a partisan, most keenly interested in maximizing his party's political power.  Pelosi cut a deal in which, as far as I can tell, every single Republican in a safe seat had to vote yes so that the Democrats could maximize their no votes.  Given that the Republican caucus is pretty much in open revolt, this was beyond moronic.  She then spent a week openly and repeatedly blaming the Republicans and the Bush administration for the current crisis. 

The way she set things up, it was "Heads I win, tails you lose":  vote for the deal and I'll paint you as heartless reactionaries bailing out your fat cat friends. 

If you're going to do that, you'd better make sure you have some goddamn margin for error in your own party.  She didn't.  Then she got up and delivered yet another speech blaming the Republicans for the bailout deal she was about to pass.

If only to make a point, some mischievous politician should suggest an amendment to any eventual bailout legislation:  In order to prevent public money from being entrusted to an entity which has demonstrated poor fiscal and accounting practices, no bailout funds can be administered by any person or entity whose spending has exceeded revenue in each of the past 5 years.

It would never pass, of course.  But it would be interesting to hear politicians explain why. 

While I find the bailout horrendous on a number of levels, people whose opinions I respect say that it's better than the alternative.  If we have but two bad choices, then we should focus on creating mechanisms to prevent this from happening again. 

For starters, we need accounting reform within the federal government.  If the government is going to take over major industries, businesses and assets, then surely the federal government should be forced to abide by accounting standards and disclosure rules at least as rigorous as those it imposes on business.  Our government should not have less responsibility to us than private business has to private shareholders.

Secondly, we need to begin communicating much more effectively.  The storyline desperately needs to be changed from idiotic "the market failed!" to "a lot of things failed, but failing businesses go away; the government gets bigger."  That's not a narrative shift that happens overnight.  It will take years.  We need to start telling a story - in new ways and through new channels - about the failures of the only monopolist the Left seems to trust: government.

Remember, when Wall Street falls hundreds of billions of dollars short, it is called a "massive crisis".  But when Washington, DC falls hundreds of billions of dollars short, it is called "2008".

UPDATE

Cato @ Liberty has more.  Jim Harper says "no bailout".

There is no possible good outcome of the House GOP’s decision to torpedo the financial bailout package this afternoon.  In every scenario going forward the decision hurts the party politically – the only question is how badly. A couple of key rules of public opinion virtually guarantee this.   

Rule #1 – In a genuinely confusing situation, experts usually win. When voters know they don’t understand something, they’re generally inclined to listen to experts if enough experts speak with a clear voice. Ask yourself what the “common sense solution to the financial crisis” is. Guess what, there isn't one - and average people are smart enough to know that. 

Rule #2 – In a crisis, you never get blamed for doing something unless it can be proved beyond a shadow of a doubt that your actions made things worse.  Libertarians hate this but it’s basic human nature to equate action with boldness and inaction with weakness. Deal with it. 

With Bernanke and an overwhelming chorus of normally somber economists are all screaming that the sky is falling unless something is done, opponents of doing something (aka House Republicans, thanks geniuses), face an impossible dilemma: 

-If the bill fails and nothing happens, no one gains anything. This is the best possible outcome for House Republicans. 

-If the bill fails and the economy tanks, they’ve wrecked the GOP economic stewardship reputation for a generation.  Not that it’s all that good right now.

-If the bill passes and the economy tanks, on one cares about the guys who voted no because the yes votes took a decisive action that had a huge amount of institutional support.  No one gets blamed in those situations. Especially since “I told you so” rarely wins votes and the electorate will be more worried about fixing things at that point. 

-If the bill passes and the economy doesn’t tank, then everyone who voted yes claims victory and every economist screaming for the bailout today is right there backing them up. 

The basic flaw in the House GOP’s logic is they’re mistaking a bunch of phone calls to their offices for an accurate barometer of public opinion (congressional office calls skew heavily towards the nutcase demographic) and they’re failing to anticipate how public opinion will evolve moving forward.  As a result, they're stuck in a no win high stakes situation and they’d better pray that an alternate package passes very soon.

Republican incumbents in close races have the easiest vote of their lives coming up this week: No on the Bush-Pelosi Wall Street bailout.

God Himself couldn't have given rank-and-file Republicans a better opportunity to create political space between themselves and the Administration. That's why I want to see 40 Republican No votes in the Senate, and 150+ in the House. If a bailout is to pass, let it be with Democratic votes. Let this be the political establishment (Bush Republicans in the White House + Democrats in Congress) saddling the taxpayers with hundreds of billions in debt (more than the Iraq War, conjured up in a single weekend, and enabled by Pelosi, btw), while principled Republicans say "No" and go to the country with a stinging indictment of the majority in Congress. 

This creates pressure on the "change" message. If this issue is made controversial, and Obama is not the first to make it an issue, how exactly is a Washington deal backed by  Bush's Treasury Secretary "change?"

But for this to be actionable, it has to be controversial. So this can't be a few lonely voices like Coburn and DeMint. It needs to be the bulk of the Republican conference. In an ideal world, McCain opposes this because of all the Democratic add-ons and shows up to vote Nay while Obama punts.

History has shown us that "inevitable" "emergency"  legislation like the Patriot Act or Sarbanes-Oxley is never more popular than on the day it is passed -- and this isn't all that popular to begin with. All the upside comes with voting against it.

A bailout may be inevitable, but so to can be the political benefit for Congressional Republicans if played correctly.