If I were President….
If I were President, I’d have one simple rule: absolutely no bail outs.
The bails outs that have saved the insolvent banks in the US have created such great problems and have served only to expand the reach of government. It is so predictable that the government cannot just bail out “systemically important” institutions smoothly; there will always be problems. The government might feel like they can smooth out the issues after the bail out, but it always turns out that its not so simple. It fuels more debate, more social unrest, more nonsensical regulation and legislation.
Take a look at what is happening now. Obama proposes a tax to be levied against banks in order to recoup the money spent bailing them out. This might sound sensible enough, except that it is a practice in ex post facto lawmaking. The money given to “capitalize” the banks never came with taxes attached. This is simply an example of strong-arm government. This is only exaggerated by Obama’s always political and populist instincts. All of this foolishness only clouds the real problem and, quite frankly, I’m shocked that people, the likes of George Soros, have no real analysis of this issue when they share their opinions on the need for new financial reform.
The core of the problem is that the implicit and, often times, explicit guarantee of financial institutions and banks in the US is what makes them “too big to fail” in the first place. If the FDIC and Fed, didnt exist, then you and I would only trust are money to a bank after prudent investigation as to the bank’s assets and ability to pay depositors. But because of the guarantees of the government, the institutions become huge and there is simply no reason for a person to rationally be concerned with the (in)solvency of the bank that he parks his money in. Instead of removing the hand of government from financial affairs, we continue to blame the banks and free markets for all of the damage that has taken place, when, in reality, it is the government control of and involvement in the financial system that creates all of the problems which will only compound with new legislation.
Think about it this way: when all of the members of the government only care to vote for a bill when their interests are reflected in it, do you really think some sort of sensible, coherent reform will emerge? A Senator from Nebraska votes for health care reform only because of the pork promised to his state. This is exactly the type of shenanigans that go on in government on a daily basis. When the process works this way, we are asking for a miracle if we think that rational, sensible laws will emerge that will somehow help the crisis. To sum it up: its more of the same. The administration bullies business and banks to appeal to the populist rage, ignoring the need for serious corrections to a financial system that has such distorted incentives which are created BY the government in the first place.