“Wall Street Plummets on Bailout Failure” — or so read dozens of headlines Monday, as if trillion dollar government schemes are the normal course of events and their sudden and unexpected “failure” can shock an otherwise healthy market into collapse.
The stock market dropped Monday because the fundamentals of the economy and many corporations are in rotten shape. America has been on a borrowing binge for decades, artificially inflating housing prices and encouraging promiscuous credit in a vicious cycle. Excess credit caused the problem, but now a credit contraction is being blamed for it. And what is the alleged solution, we’re told? Having the government take out billions in loans and throw money into the air over Wall Street.
There’s no one left to lend to that hasn’t already maxed out or defaulted, so now Congress wants to force the country to borrow via a bailout. Failure to do so could “cause” a recession, so don’t question things too much.
Saying that Monday’s correction was caused by a failure to bail out is like saying that plane crashes are caused by someone forgetting to turn off gravity.
It’s true, I suppose, but it glosses over the fact that something more manageable was fundamentally wrong to begin with. If the laws of gravity or supply-and-demand were to suddenly end, we could all fly high without a thought. But it’s not going to happen. The failure of the bogus bailout Monday was a welcome reprieve from panicked self-delusion. Unfortunately, the bailout schemes will be dressed up and raced back out Wednesday in the name of restoring confidence to the markets.
There’s only one problem: political trickery cannot restore confidence to a market. Only a legitimate market bottom, based on real value, can restore confidence to a market. One way or another, such a bottom will have to happen.
In fact, the biggest external threats to investor confidence are the proponents of the supposedly confidence-boosting bailout — who are all busy screaming at every camera and microphone, “ECONOMIC DISASTER IS HERE! DO WHAT I SAY NOW!”
Last week, the President of the United States actually went on TV and said, essentially, “IT’S TIME TO PANIC! — If I don’t get strange new powers over the economy.” Please, George, stop helping.
And that goes for Nancy Pelosi and Barney Frank too. Please, stop helping now. I no more believe that their loud and clumsy action can stop a recession than I believe that Barney Frank can run outside and stop the rain. I am sure, however, that when the rain ends spontaneously, he will take credit for the abundant sunshine.
The economic die has already been cast and doubling down cannot change the outcome. It can increase the loss, however. What we should do now is accept reality and work on building a more solid economic foundation for the future.
If government wants to encourage lending to private businesses, why doesn’t it stop competing with them for limited liquidity in the credit markets? In other words: stop borrowing all the damn money for Washington. Even better, why not pay back some federal debt? Nothing would help a credit crunch like the world’s greatest credit hog taking a break. Of course that would involve reducing government, which is unthinkable, of course.
If the government insists on spending $700 trillion, why not spend it in the housing market, rather than the credit markets? Housing, after all, is what caused this mess.
If Congress has to help, why not repeal the laws and regulations that encouraged mortgage lenders to throw money at “underserved” applicants, also known as “deadbeats”?
Or why not send immigration officers to raid a few new home construction sites? New housing starts are already on track to be at their lowest level in 20 years, but the sooner we decrease housing supply, the faster it gets back in line with demand. For once, enforcing labor laws would carry little cost in short-term economic disruption.
There are a few things government might do to help, but fighting the laws of economics is not among them. History is strewn with the wrecks of nations that believed government action was a sufficient replacement for actual economic activity. We can face this reality, take our hit and move on more wisely — or we can try to repeal the law of gravity and hope that the universe listens to Congress.
Let the bailout stay dead.