Stop the Bailout Madness

I finally read an article that made absolute sense, “Why Bailouts Are Not The Answer” by Peter Schiff. Not only is the article brilliant, so are many of the comments. Here is a small quote from the article:

The brutal truth that no one in Washington dares acknowledge is that our systemic economic problems can only be solved by a reduction in consumer borrowing and an increase in savings. We must repair our national balance sheet and a painful recession is the only path to achieve this. By interfering with the market’s attempts to bring this necessary change about, all the proposals currently coming from Washington or bubbling up from think tanks and Nobel prize-winning economists, will only exacerbate the imbalances and lay the foundation for even greater losses and a larger crisis.

A short-run reduction in GDP is a sacrifice we must be willing to accept. If we swallow this medicine now, in the long run we will have a sustainable rise in GDP as higher savings leads to increased capital investment, greater productivity, and eventually a lasting increase in consumption.

I couldn’t have said it better myself, though I’ve tried many times. Failure is part of our system. We should embrace the fact that fools eventually fail and that success is a reward, not a right. Success can’t exist without failure. Think about that. If failure does not exist for the big banks because government won’t “let” them fail, then what incentive do they have to fix the problems quickly - especially when they know the government will give them MORE money and reward further incompetence? We should not undermine our entire system to save a few “too big to fail” companies that have failed.

If they were to big to fail, why did they fail? There is no such thing as too big to fail. The government is stepping beyond its boundaries. We are propping up the economy and certain businesses in a time when the excesses need to be flushed out so we can start fresh and have healthy sustainable growth. If we got rid of these banks, perhaps we would also get rid of the derivative problem they have created. Much of our growth in the past several decades has not been healthy nor has TRUE sustainable economic wealth been created - it is fake growth funded by insane debt levels that need to be paid back! The way we structure the economy on debt at the moment requires the debt to expand constantly just to stay afloat. The system is poorly designed - all going back to the money supply.

The government has now decided it has the power to alter economics and choose winners and losers. The winners so far have been the big banks, primarily ones connected with the Federal Reserve. Conducting all these “bailouts” will not correct the economy - it will merely delay it from being restored and exaggerate the problems by making them worse. Yup, government is making the problems worse! We need to allow a recession to occur without bailing these companies out. Yes, it will be painful - but less painful than the alternative.

One of the fundamental flaws with bailouts is that the government gets to pick and choose the winners and losers. Times like these the conservative and “good” banks that didn’t get crazy will survive and thrive - while the ones that took on too much risk should fall. The good banks aren’t being rewarded for competence in today’s environment.

Here is an excellent comment on Peter Schiff’s article:

The sentence “the decision to let [Citigroup] fail” gives away the game.

It isn’t simply semantics or logic to point [out] that when any business can be saved (bailed out) or condemned to failure (allowed to fail) by “unseen powers behind the throne” then we don’t have a capitalist economy but something that is closer to socialism.

Business failure is an essential part of capitalism. When there are “eminences grises” behind the scenes with the power to save (or “allow” to fail) any business they deem worthy or unworthy, then we have one of the many forms of socialism.

For years economists have pointed out that socialism has crept into America under the radar of anti-communist rhetoric, as oligopoly capitalism, but as long as the system created prosperity and jobs, no one payed any attention to them. Even so, most Americans call this system “socialism for the rich.”

It is only a short step from socialism for the rich to “socialism for the rest of us.

Success can’t exist if failure doesn’t also exist as a possibility. We don’t live in a capitalist society anymore - we live in mixed economy that contains many socialistic elements. It’s been this way for a long time regardless of what party has been in power.

There are several things that need to occur. It won’t be quick, easy or painless.

1. We need to let the banks fail that can’t stand on their own two feet. Who cares about their derivative positions. Just let them fail. Period. It was all fake wealth created anyways - it wasn’t real.
2. We need to let the healthy banks thrive as a result of the bigger banks falling - this will happen naturally.
3. We need to abolish the Federal Reserve. If you want a Central Bank - then make one that is owned and controlled by government and fully audited, not a private corporation that has NEVER been audited like the current system. I’m tired of Federal Reserve bankers getting all the bailouts and having the power to print money and affect interest rates and being promoted into high government posts after having made such a mess.
4. Government needs to get out of all special interest programs and slash expenditures. There are trillions of dollars being wasted on programs that aren’t necessary and are outside the spectrum of what government should do.
5. Issue a new currency that is NOT debt. Right now every dollar is debt. Dollar = Debt.
6. Abolish fractional reserve banking. Every dollar should be a real dollar. Period. No printing “fake” money on a fractional basis.
7. Tax reform is needed badly. Get rid of death taxes, property taxes, income taxes, and corporate taxes - if we didn’t have government so large, we wouldn’t need these taxes. A sales tax based on consumption would be more fair and would reward savers and wealth building within the nation. We could also use service fees and tariffs to help balance the budget. We didn’t have income taxes until just recently!! Remember, we must get rid of MOST government departments that aren’t vital so we can afford to reform the taxes.
8. Companies like GM, Ford and Chrysler need to get a bank to loan them money or file Chapter 11 and reorganize until they are healthy and once again competitive and financially sustainable.

Would the plan above be painful? Of course! Once we fix the underlying problems it would be much better for our society in the long run. Our fiat dollar controlled by the Federal Reserve DOES NOT award savers but encourages debt. The current tax system DOES NOT AWARD savers.

I realize our government and those in power won’t do any of the above. They won’t let go of the current system without kicking and screaming because it has centralized power in their hands and the hands of a few private banks. I guess we’ll just play “bailout the banker” for a while longer (we’ve only promised them about ~$70,000 per US household in the last six weeks). Poor bankers. I heard a neat quote that would make a great bumper sticker, “No Banker Left Behind".

I’m disgusted we’ve started down the bailout path - it completely undermines our economy. I don’t want ANY bailout for ANYONE. Period. This $7.7 trillion was not a banker bailout, it was a banker take-over. It didn’t bail anyone out but the biggest of banks - those of us on the ground are still up to our necks drowning in debt and losing our jobs - and their solution is to give the biggest banks (that over-leveraged themselves to the point of insolvency) OUR money so they can lend MORE to us? What? We don’t need more loans! Ask yourself, why does government give a few select banks the money? The answer, the truth, will set you free.

“None are more hopelessly enslaved than those who falsely believe they are free.” - Johann Wolfgang von Goethe

Comments

[The LFB:]

I'm wondering what all the schilling for Peter Schiff is about. After all, it was Peter who was so famously a commodity bull, a gold bull, an emerging market bull and a dollar bear.

According to Peter "no one" could have foreseen the dollar's gain.

Peter just couldn't tell his clients to "get out of the way" of the disaster. How much better off they all would have been in cash!

A lot of the nonsense comments here are simply knee-jerk reactions to a bad situation.

There is nothing inherently wrong with credit, securitization and all the rest of it. The problem lies in that fact that man is greedy, and therefore prone to excess.

All that's needed next time are better underwriting standards and a bit more common sense regulation. Too much credit is obviously no good, but throwing the entire system out doesn't make sense either.

2008 Dec 05 03:55 AM

[User 313349:]

Nice! But maybe, we have reached the limit of growth too. We should not go back to the paradigm of growth, but sustainability.

2008 Dec 05 05:33 AM

[ThePatriot:]

LFB...In the Long term.. Schiff will be correct.. you talk of the dollar, gold and commodities as if they are guaranteed to stay at the prices which bolster your arguments..The fundamentals are completely off regardless of what the current face values are....The greed that you talk of is inherent in man... but oh how dangerous it is when greed and the power to create money is horded by central banks...
History tells us the current system is impossible to sustain. The artificial stimulation by the fed that has staved off a sudden economic crash in exchange for a slow seemingly painless decline (aka the Dow one year ago) is currently running on fumes.. The Fed is running out of chess moves and silver bullets to prevent the inevitable.

.. One of the best recent quotes Schiff has said is this..

"In the early part of our history..we were able to manufacture our way into becoming the greatest nation of wealth and now we have borrowed and spent our way into becoming the greatest debtor nation"

This is so true and yet people like you do not understand its implications. The central Bank has stolen americas true wealth as was predicted by our founding fathers. The only thing we have now is a never ending cycle of booms and busts created by the money masters.. He who owns the gold.. makes all the rules like it or not.. And I have a feeling we arent going to like the new rules.

2008 Dec 05 02:43 PM

[Vigilance:]

The most sensible and logical article I've seen here.

2008 Dec 05 09:34 PM

[Gold n Stuff:]

1) This is Nabloid's second article/advertisement on behalf of this person in less than a month.

2) The author is anonymous and writes under a pseudonym.

2008 Dec 08 11:43 AM

[Robert Nabloid:]

Perhaps it's because Peter Schiff is making more sense than most "experts" do right now with all the talk about how badly bailouts are needed... A lot of article writers are writing about various other "experts" on an almost daily basis (Geithner for example) and praising Obama's plan (he hasn't released one)... I'm merely trying to get SOME views on the opposite side of the bailout argument.

I write under a pseudonym. So? I assure you, I am a nobody and I don't get paid for writing this stuff other than the google adsense ads I have on my own blog - which usually earn less than $1-2 a day - and I spend $29.95 to host the site on GoDaddy. Don't worry - I don't get paid.

Now do you have an actual comment that has anything to do with what I wrote about in my above article? Do you think my above idea is a bad one? Why so? Do you think it's good? Why so?

On Dec 08 11:43 AM 2 Observations wrote:

> 1) This is Nabloid's second article/advertisement on behalf of this
> person in less than a month.
>
> 2) The author is anonymous and writes under a pseudonym.
>

2008 Dec 12 02:03 PM