Tax holiday instead of bailout

Thanks to Jeff Jacoby of The Boston Globe for shedding light in Rep. Louie Gohmert's (R-Texas) proposal: stop Treasury Pauson from spending the remaining TARP funds and use that money to finance a two-month tax holiday for every American taxpayer.

Is TARP constitutional?

The Trouble Asset Relief Program was passed by Congress and signed into law to thaw the credit crisis. At least that was its initial plan. But in reality the law gave much broader authority to the Treasury Secretary in using TARP funds, some hundreds of billions of dollars. In drafting the legislation, members of Congress met with Secretary Paulson and Chairman Bernanke to learn more about the problem. It was evident that either Paulson and Bernanke weren't able to adequately explain the situation, or lawmakers had no intention of fully understanding the crisis. The bill was passed within a few days, amid some lawmakers' admission of not really knowing what's going on, but "something had to be done."

George Will writes in Newsweek:

John Locke's "Second Treatise of Civil Government" (1609), which deeply influenced America's Founders, says: "The legislative cannot transfer the power of making laws to any other hands: for it being but a delegated power from the people, they who have it cannot pass it over to others." And: "The power of the legislative ... being only to make laws, and not to make legislators, the legislative can have no power to transfer their authority of making laws, and place it in other hands."

But that is essentially what TARP has done. It has made Treasury Department bureaucrats into legislators; or perhaps it has made Secretary Hank Paulson the fourth branch of government...

Our lawmakers sort of gave up on learning in detail about the crisis, and just lazily pressed for a vote on TARP. They threw up their arms and decided that letting the Treasury do all the work would be easier. And look at the situation now: more bailouts, more companies and municipalities asking for monetary aid, and more uncertainty from Paulson and Bernanke.

Bailout of Citigroup proves we are screwed

Just in time for Thanksgiving, the Fed will rescue Citigroup with a bailout package of a few gazillion bucks (that number is subject to change without notice). According to the Fed, Citigroup is "too big to fail." So the lesson in American capitalism is to do whatever you can to become big, then you are virtually guaranteed never to go bust.

This is ridiculous. I'm with Bill Kristol: just admit we don't know! Paulson and Bernanke and members of Congress have no idea how to save the economy. What next? Why not just let capitalism work? Do we have any other choice, really? All the bailouts are clearly not effective.

Paulson, Bernanke grilled in the Hill

The House Financial Services Committee plans to hear testimony from Treasury Secretary Paulson and Fed Chairman Bernanke today about their U-turn decision in using the $700 billion bailout money. Originally the money was for rescuing bad mortgage loans, but now Paulson wants to alleviate the pain in consumer debts. He's even taking his cause to the media with an op-ed in the NYT.

Congress gave Paulson overwhelming power with TARP (Troubled Asset Relief Program), but now it realizes that things aren't improving much, especially with the doomsday talk from Detroit automakers and stock markets continue to plunge. Lawmakers now want some answers as to how Paulson's new focus would help the economy.

I really don't think Paulson and Bernanke know what they are doing. Either the scale of the problem is beyond their control, or they are just incompetent. Whatever the reason, I think the only sure way we know will work is through capitalism without government interference. It's a bitter pill to swallow, but it'll help with the recovery. I'm afraid that the government's help isn't really helping and will only prolong the pain.

Financial scare tactics?

Is Treasury Secretary Henry Paulson and Fed Reserve Chairman Ben Bernanke painting a gloomier financial outlook than it really warrants? The $700 billion bailout plan is now up for a vote. The plan calls for $250 billion to be immediately available for the Treasury Department to buy up bad debts and failing institutions.

Like many others (Irwin Kellner of WSJ MarketWatch, Joseph Calhoun of Alhambra Investment Management, and Pejman Yousefzadeh of RedState), I am not convinced of the severity (near depression!) of the nation's financial landscape. The reason for this mess was government interference in the first place. By letting the government seizing more control of the elements of capitalism would hinder the recovery, in my opinion.

There's nothing wrong with Lehman Brothers collapsing. That's the price it pays for poor investment decisions. There's nothing wrong with Merrill's fire sale to Bank of America, WaMu's sale to JPMorgan Chase, or Wachovia's sale to Citi. They had to do it in order to survive in this market. Godman Sachs was still able to raise $10 billion in one day. JPMorgan raised $10 billion in order to finance the WaMu buyout.

Obviously the engine of capitalism still runs. However, it seems Paulson, Bernanke, and many lawmakers are unwilling to trust it anymore.

The bailout drama

Whoa! The supposedly bipartisan effort to reach a deal on the bailout bill is unraveling like a bad soap opera. Treasury Secretary down on one knee begging House Speaker Nancy Pelosi? As many would say on the Internet: Pics or it didn't happen! McCain screwing up the negotiations? I don't think he's to blame -- many House Republicans aren't pleased with the bill because their constituents tell them so!

Then there's the tie to ACORN. The Democrats wants 20% of all profits from the bailout to stay in the Housing Trust Fund. They've used that fund to support ACORN and the National Council of La Raza. Being a hard-working, tax-paying, middle-income household, I think all the profits should be returned to the taxpayers. Isn't that only fair?

Of course, Paul Krugman of the NYT just had to bring up the fact that Henry Paulson belongs to the "administration that misled America to war." Get over it, already! Where are the grown-ups indeed, Mr. Krugman? I do agree that the bill should not make Paulson the Finance Czar and that there ought to be the usual checks and balances built into place.

There is no doubt that a rescue plan has to be executed. But the majority of Americans want fairness in the bailout. People nowadays are not walking around with a fat wallet in light of the high gas prices and inflation. We don't like to seeing our neighbors lose their homes or historic Wall Street firms collapse, but all we ask for is some fairness because we followed the financial rules and planned accordingly, yet we seem to be the ones paying for others' mistakes.

Despite market turmoil, economy is OK

Yesterday was a scary day for the market: Dow dropped 500 pts. on news of Lehman Brothers collapse, Merrill Lynch's fire sale to Bank of America, and AIG's credit worries. It was the worst drop since the 9/11 terrorist attack.

Many folks are in a panic. They're losing confidence in their banks. They worry what'll happen to their savings. Their retirement accounts are shrinking. It's like the sky is falling...

The Fed understands this crisis which stemmed from institutions' overexposure to the risky subprime mortgage market. Many banks have already failed and taken over by the FDIC. A few months ago the government engineered a sale of troubled Bear Stearns to JPMorgan Chase. A few weeks ago Fannie Mae and Freddie Mac were seized by the government. Was Lehman Brothers betting on a bailout? No bank would pick up Lehman without the backing of the government, and Treasury Secretary Henry Paulson wasn't keen on another bailout. In the end Lehman was left without a suitor and had no option but to file for bankruptcy, ending its 158-year history and making history as the largest bankruptcy ever.

Credit is due to Secretary Paulson for allowing capitalism to work. In order for capitalism to remain healthy, sometimes it must go through illnesses, just like a human. Now that he has shown the market that he's not always Uncle Sugar, many banks have pooled together cash to improve lending, instead of always relying on the Fed.

What will happen to AIG and other troubled institutions in the future? Nobody knows, but capitalism is also about owning up to the decisions you make, good or bad, and living the consequences.