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Posts Tagged ‘bailout’

NY Times has an article today about BB&T, a bank that has been doing remarkably well in the crisis, and its charismatic chairman and former CEO, John A. Allison, who is an ardent Ayn Rand follower. Consider these:

• In his spare time, Mr. Allison travels the country making speeches about objectivism and his bank’s distinctive philosophy.

• His bank was forced to take bailout money, even though they did not want it. He returned the money with interest. He says “Everyone thinks we got some kind of subsidy, but it’s going to cost us about $250 million for money we didn’t want.”

• Under Mr. Allison, new executives were handed a copy of “Atlas Shrugged.” All employees get a 30-page pamphlet describing BB&T’s philosophy and values: reason, independent thinking and decisions based on facts.

• After the Supreme court upheld the right of local governments in 2005 to condemn private property and hand it to someone else for commercial development, he says, BB&T refused to make loans to developers who obtained property that way.

• BB&T spends about $5 million a year to finance teaching positions and research on “the moral foundations of capitalism.”

Read more here. Actually it is interesting to read the article for another reason too, for it displays the writer’s biases oh-so-clearly. He clearly finds this whole individualism thing something of a mild curiosity not worthy of too much respect and goes into some length to emphasize that serious philosophers consider Rand irrelevant. But then, he works at the NY Times.

(Previous posts on Ayn Rand’s philosophy here)

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Alex Tabarrok makes a good point:

Notice how the term nationalization confuses the issue.  First, it suggests government ownership of the banks which would indeed be a disaster.  People in favor of free markets will rightly want to avoid any such outcome but ironically it’s the current situation of “wait and see,” and “protect the banker,” which is likely to lead to an anemic recovery and eventual government ownership.  Second, it confuses people on the left who think that nationalization is a way to insure that taxpayers get something on the upside.  That idea is a joke – there is no upside.  Taxpayers are going to have to pay through the nose but the critical point is that the taxpayers must pay the depositors whom they have guaranteed not the banks.

The debate so far has been framed between a “bailout” and “nationalization.” But the public rightly sees the bailout as a way to protect bankers and thus we get pressure for government ownership, which has already happened in part through government control over banker wages.  Bankruptcy in contrast is a normal free market procedure, it emphasizes that the firm has failed and current management should be removed.  Framing the issue in this way, for example, makes it clear that only the depositors should be protected and under reorganization there should be no control over wages on future management (wages are going to have to be high to get anyone to take on the task).  Finally the idea of bankruptcy makes it clear that the goal is to get banks solvent, under new management, and back under private control as quickly as possible.

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Arianna Huffington’s latest article condemning laissez-faire as a failed philosophy hits all the right lefty notes. Parts of it almost seem lifted from Obama’s election rhetoric. Not wholly unexpected from a woman who once proclaimed that she only texts three people: her two teenage children and Barack Obama.

Actually, Huffington’s piece is so bad that it almost reads like a self-parody. From her depiction of Bush — a man who oversaw the biggest regulatory expansion since Nixon — as the ultimate free market champion to her refusal to even attempt any kind of analysis,  Huffington reveals herself, like so many others, as a person blinded by her love for the echo chamber she lives in. Naomi Klein’s terrible book which conveniently lumped together all her enemies into an undefinable mass that she could pummel still made a basic, incontrovertible point — times of crisis give those in power an opportunity to extend their sway. Even the Times article Huffington so approvingly links to contains some redeeming features — interesting quotes, lots of relevant history, a (correct) indictment of Bush’s disastrous home-ownership-at-all-costs policy — that make it a good read. Articles by Krugman and Stiglitz, despite their obvious bias often bordering on intellectual dishonesty, usually contain one or two nuggets of truth. Huffington’s piece, full of huffy moralizing and utter lack of intellectual depth, makes you wonder why you just gave up two minutes of your life.

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The Austrian school of economics is in a permanent “We told you so” mode these days. In this very readable post, Roderick Long gives the Austrian economist viewpoint of the current financial meltdown. After offering a detailed explanation of why it is regulation that got us into this mess (most of his points I agree with, some I am skeptical), he asks the million dollar question:

Okay, some will say, maybe it was government, not laissez-faire, that got us into the mess; but now that we’re in it, don’t we need government to get us out?

His answer is that the government cannot get us out.

There’s just not much the government can do that will help (apart from repealing the laws, regulations, and subsidies that first created and then perpetuate the mess – but that would be less a doing than a ceasing-to-do, and anyway given the incentives acting on government decision-makers there’s no realistic chance of that happening). The bailout is just diverting resources from the productive poor and middle-class to the failed rich, which doesn’t seem like a very good idea one either ethical or economic grounds. The only good effect such a bailout could possibly have (at least if you prefer costly boondoggles without piles of dead bodies to costly boondoggles with them) is if it convinced the warmongers that they just can’t afford a global war on terror right now – but there’s no sign that they’re being convinced of anything of the sort.

So what should the government do? Nothing, is his answer.

I don’t know if I agree with him. Even if he is right on the economics, there are political consequences to doing nothing, and not all of them are good for freedom or economic health. Furthermore, not beng a trained economist, I cannot fully measure the accuracy of his claims or pass a judgement on whether the Austrian approach to money is superior to, say, that of the more mainstream Chicago school of economics. The fact that the Austrian economists have — unlike everyone else — always used verbal, imprecise and non-mathematical arguments, does not exactly inspire scientific confidence.

However, I do recommend that you read the whole thing.

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One of the disturbing aspects of the whole bailout thing is the staggering amount of power it gives to Paulson, the Treasury secretary (basically, complete discretion, with virtually no oversight, about how to spend $700 billion). You’d think that the Congress would try to solve this problem, not make it worse. The whole thing beggars belief.

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