Comments (25)

• Nick

  We tell people all the time: "You can't spend your way out of debt..." We tell them "...if you have ten thousand in credit card debt and you get another five thousand dollar card, you don't have five thousand *more* dollars to spend, you have five thousand *more* dollars in debt."

  Does that rule suddenly disappear when it's the federal government instead of an individual?

  Creating money to shore up banks and "bail out the economy" is like giving them another credit card only the limit is just a *tad* bit higher...

  Published: October 14, 2008 9:06 AM

• E5

  I almost wish I donated money to Cato just so I can call them and tell them I won't be donating to them anymore.

  Almost.

  Published: October 14, 2008 9:20 AM

• Anonymous

  E5,

  You can tell them that at first you were hesitant but that now you are certain you will never give them any money. And it won't cost you a dime.

  Published: October 14, 2008 10:17 AM

• Mr. X

  Cato appears to just be stating that the current plan may work, but isn't commenting on whether or not they think it's the "right" plan.

  Published: October 14, 2008 10:54 AM

• David Spellman

  The plan won't work. The dollar will still be worthless.

  Published: October 14, 2008 11:33 AM

• Richie

  Cato is doing this because they don't want to get ignored by the Washington establishment.

  Published: October 14, 2008 12:01 PM

• Mike Gogulski

  Yet another reason to discount Cato as yet another statist tool.

  Published: October 14, 2008 12:13 PM

• Bill

  I am always feel more "confident" when the government takes over something. It tells me that the managers are so good that they don't need owners. I mean what are owners anyway other than little cash cows waiting to be milked.

  I felt much better when the State of Ohio took over the School District of Cleveland. The state was getting such a deal.

  Published: October 14, 2008 12:38 PM

• Caveman (intellectually-speaking)

  I think Richie's right. Cato is the closest thing to a mainstream libertarian organization. Not that that's an excuse, but perhaps they think they've got to maintain what establishment cred they've got. Disappointing, nontheless. With more and more people beginning to question the efficacy of the state libertarians should be redoubling their advocacy of free-market capitalism rather than suggesting statist actions could be effective.

  Published: October 14, 2008 1:34 PM

• fundmentalist

  I was listening to a guy on CNBC last night who claimed that the next shoe to drop is options. Apparently, banks sold options on cheap loans by the bushel over the years and now companies are exercising those options. So banks are losing money on the loans and they can't get out of their contracts without going bankrupt. How confident are people going to be in their banks when that hits the fan? Will the Feds propose another $700 billion bail out?

  Published: October 14, 2008 1:45 PM

• Foudufafa

  I am not a libertarian and I am not that familiar with the Mises principles of economics. In fact, you could tell that I am quite ignorant about economics in general. I understand that it doesn't seem right for the government to take over the banks and financial institutions debts and that what went up will eventually have to go down, but I have found any explanation on this site or other related sites that explains how to minimize the collateral damage that this crisis can create on Main St. It seems to me that the government intervention is geared toward controlling the reduction (fall) of debt/capital rather than maintaining it at current unsustainable levels. I am not sure that leaving the market in an uncontrolled fall by freezing credit is a preferable solution. So I am interested to hear not criticism of the current plan (there's plenty of that around), but what alternatives are out there that would provide dampening and that would not involve government intervention.I am not sure that leaving the market in an uncontrolled fall by freezing credit is a preferable solution. So I am interested to hear not criticism of the current plan (there's plenty of that around), but what alternatives are out there that would provide dampening and that would not involve government intervention.

  Published: October 14, 2008 2:10 PM

• John

  The only positive light that libertarians can find in this is that it will accelerate the collapse of the Imperial Federal Government and its corporate-State socialist system. It is a good opportunity to explain to non-libertarians how harmful Statist policies are, especially those as pervasive as monetary policies. It's not as beneficial as actually demonstrating how effective libertarianism is in practice, but since both the morals and economics of libertarianism are right, we can explain what's wrong with overt socialism.

  Published: October 14, 2008 2:22 PM

• foudufafa

  "but since both the morals and economics of libertarianism are right". That is a bold statement. What is "right"? "right" according to what? to whom? I was trying to learn the pros and cons of alternate approaches, definitively not a dogmatic approach.

  Published: October 14, 2008 2:28 PM

• Krazy Kaju

  Here's the libertarian case:

  Allow the government to nationalize the industries so that they can mess up even more later on and give libertarianism a surge of interest.

  Published: October 14, 2008 2:42 PM

• Milena Thomas

  I think the quote had to have been extrapolated from a larger context. I have difficulty believing CATO would propose such an idea, but perhaps a question such as, "Should the public this idea, though terrible, will provide a temporary solution?"

  I can see how a leading question could have gotten such an answer. Let's hope this gets cleared up.

  Published: October 14, 2008 2:51 PM

• Lester Hunt

  I have some hopes that Milena Thomas is at least partly right. The story quoted introduces the quote like this:

  "William Poole, former president of the Federal Reserve Bank of St. Louis, was a fierce critic of Treasury's initial plan to buy up distressed mortgage-backed securities. Such a scheme, he said, would lead banks to dump their worst assets on the taxpayers. But Treasury's new tack may well do the trick, said Mr. Poole, ..."

  Published: October 14, 2008 3:47 PM

• Black Bloke

  Foudufafa wrote,

  "I understand that it doesn't seem right for the government to take over the banks and financial institutions [sic] debts and that what went up will eventually have to go down, but I have [sic] found any explanation on this site or other related sites that explains how to minimize the collateral damage that this crisis can create on Main St. It seems to me that the government intervention is geared toward controlling the reduction (fall) of debt/capital rather than maintaining it at current unsustainable levels. I am not sure that leaving the market in an uncontrolled fall by freezing credit is a preferable solution. So I am interested to hear not criticism of the current plan (there's plenty of that around), but what alternatives are out there that would provide dampening and that would not involve government intervention."

  Go here: http://blog.mises.org/archives/008677.asp

  Published: October 14, 2008 6:07 PM

• AB

  Foudufafa,

  "I understand that it doesn't seem right for the government to take over the banks and financial institutions debts and that what went up will eventually have to go down, but I have found any explanation on this site or other related sites that explains how to minimize the collateral damage that this crisis can create on Main St...I am not sure that leaving the market in an uncontrolled fall by freezing credit is a preferable solution."

  The damage has already been done. The artificially cheap credit encouraged by Federal Reserve policies and the dishonest practice of fractional reserve banking that the institution further enables (lending money that does not exist) encouraged many people, from Wall St bankers to Main St citizens, to make bad decisions. The seemingly low cost to borrow money (the interest rate) made it appear as if there were a high level of savings to back the borrowing, when in fact there were very little savings.

  There is no magic cure to spare Main St. from the pain of contracting credit that never had real foundations in the first place. However, the sooner you allow the market to liquidate the bad investments and find the most efficient uses for the smaller, real pool of savings, the faster and more smoothly we can start on a path to recovery. Credit might not be as easily and cheaply obtained, but it will not be 'frozen' and it will reflect reality, which one can never hide from indefinitely. Injections of more cheap credit to 'unfreeze' credit markets is akin to drinking heavily to cure a hangover - you're just going to feel that much worse later on.

  It is always saddening to see people lose things important to them - and the media is certainly tugging America's heartstrings on the issue of foreclosures. Even people who know that fundamentally, backstopping such foreclosures is economically unsound, may feel empathy for such people and allow that to affect their policy preferences. But you also have to consider the unseen and well as the seen when evaluating a situation. For every family that can't make their housing payment now on a mortgage they can't afford, there was another family that was outbid on that house because they weren't willing to take the risk of extending their finances that much. That second family may still be renting, or live in a more modest house they felt they could afford more comfortably. It is understandable that Family 1 may have thought overextending themselves was a good idea (after all, the Fed induced housing bubble made it look to an average person as if housing values would go up forever -- you can just refinance, right?) but that doesn't justify further injuring Family 2 by forcing them to subsidize Family 1 through their tax dollars or more inflation. The same goes for Neighbor 1 who took cash out of his house at low rates so he could take a vacation, buy a car, or pay for college, thus ruining his equity to mortgage ratio now that housing values are plummeting. Neighbor 2 who made double mortgage payments, drives an old car and saved his entire life for his kids' college education shouldn't be pillaged through more taxes and inflation to keep Neighbor 1 in his house. In short, those who resisted the siren's call of the Fed don't deserve to be further penalized for the sake of those who were lured by it. Rather, address the source of the problem - the existence of the Federal Reserve itself.

  
  As for your last statement: "What is "right"? "right" according to what? to whom? I was trying to learn the pros and cons of alternate approaches, definitively not a dogmatic approach.

  I can't speak for John, but I believe that stating the economics of libertarianism are 'right' is not a dogmatic statement. What it may refer to is the fact that other commonly accepted theories of 'macroeconomics' fail to maintain consistency with 'microeconomics' - in reality economics as a discipline must be coherent and consistent, just as knowledge of arithmetic, logarithms and trigonometry is not discarded when performing a complex signal analysis. Austrian economics maintains this vital consistency where others do not.

  
  

  Published: October 14, 2008 6:14 PM

• jason

  Mr. X has it right. They are not necessarily advocating this move but suggest it might work. I think we can all agree on the first part of his quote:

  "Investors need to be confident that the banks they're dealing with are unquestionably solvent, and it's in the interest of banks to assure investors that that's the case," he said. "One way banks can provide that assurance is to raise additional capital..."

  The only problem that many of us have is that some of this money is coming from the state (i.e. taxpayers).

  He is not addressing the moral hazard or whether these "banks" are banks directly involved in the bad mortgage backed securities problem. He may be talking about other solvent banks that simply need to reassure their customers that they too won't fold.

  Published: October 14, 2008 8:01 PM

• andy

  Am I interpreting this banter correctly? Do you all kind of feel like me in that you want the real shit to hit the fan? And then you want to say "told you so" but we won't be happy about it? And at the same time you can't see what the next step is?

  Published: October 14, 2008 9:17 PM

• somedude

  "For every family that can't make their housing payment now on a mortgage they can't afford, there was another family that was outbid on that house because they weren't willing to take the risk of extending their finances that much. That second family may still be renting, or live in a more modest house they felt they could afford more comfortably."

  I am that other family... and I am still renting and waiting. Sadly, at every turn my government keeps trying to prop up house prices and keep me out of the market.

  Published: October 14, 2008 11:32 PM

• somedude

  "For every family that can't make their housing payment now on a mortgage they can't afford, there was another family that was outbid on that house because they weren't willing to take the risk of extending their finances that much. That second family may still be renting, or live in a more modest house they felt they could afford more comfortably."

  I am that other family... and I am still renting and waiting. Sadly, at every turn my government keeps trying to prop up house prices and keep me out of the market.

  Published: October 14, 2008 11:32 PM

• DS

  This is at least partially reassuring from Cato:

  http://www.cato.org/pressroom.php?display=ncomments&id=153

  "The Bush Administration's plan to forcibly inject capital into the nation's major banks represents the unwinding of its fatally flawed policy of sustaining prosperity by leverage and debt. Economic growth is fostered by savings and investment, not debt, deficits and financial disorder. Just as the nation's banks are too heavily indebted, so too are many consumers.

  Thrift and fiscal restraint, both individual and governmental, are the only long-term solutions to the current crisis. As a nation and as individuals, we will need to recognize that debt-driven prosperity is illusory. Personal and government consumption must fall. It will do so through prudent restraint on spending, or inflation that reduces the real value of all economic magnitudes."

  It shows they have not completely jumped on the statist bandwagon.

  Cato does some good work, unfortunately many of their solutions tend to be tinkering with the existing government structures instead of eliminating them. Their support and promotion of DE-regulation instead of UN-regulation has left them in a nasty spot. It is very likely that the former will be blamed for most of the problems when the latter would have made sure that none of this would have happened in the first place.

  Half measures instituted in the name of staying relevant to Washington insiders will likely have the effect of marginalizing them and all libertarians by association.

  CATO should have never moved to Washington.
  

  Published: October 15, 2008 6:27 AM

• John

  foudufafa
  "That is a bold statement. What is "right"? "right" according to what? to whom? I was trying to learn the pros and cons of alternate approaches, definitively not a dogmatic approach."

  Well, fair enough; I actually wasn't responding to you or any other particular commenter, so I wasn't trying to teach you anything; hopefully I didn't deter you from learning what you came here for.

  I say libertarianism is "right" because it prohibits the initiation of force against others but otherwise lets people do exactly what they want with their lives. It is "right" because it is the only moral code that not only can but must apply equally to everyone, everywhere, at all times. As opposed to every form of Statism that I know of, which declares non-violent non-participation a capital offense, to be punished (literally) by murder.

  Libertarians would let other people subscribe to all the terrible school systems, communist health care systems, unaccountable police forces, heinous drug wars, and retirement Ponzi schemes that they wanted, as long as they paid for it with their own time and money and left everyone alone who didn't want any part of it.

  The economics of libertarianism (which is largely Austrian economics or something similar) is correct because of its foundation in non-aggression and because of the real world that we live in every day.

  Published: October 15, 2008 7:02 PM

• Vanmind

  Like the LP, CATO has been infiltrated and undermined. Both are now shadow-lingering socialist concerns hoping to cement the "proper" friendships for the coming Dark Age.

  Published: October 16, 2008 8:58 PM