The Bail Out is Socialist...and Not Good Economics

In a recent article, "Kill the Bailout," Robert Tracinski argued that the bail out is socialist and an attack on free markets and, well, reality. Tracinski wrote:

"The House of Representatives deserves praise for taking swift action to avert a growing economic crisis--by not approving the trillion-dollar financial bailout plan."

"The bailout bill was blocked Monday by a rebellion among House Republicans, who voted two-to-one against a plan they consider a step down the "slippery slope to socialism," in the words of Texas Representative Jeb Hensarling."

"They are absolutely correct, and the 133 Republicans who voted to stop this coup against the financial markets--not to mention some of the 95 Democrats who may have balked for similar reasons--need to find the courage to stand firm. That's especially true since the Senate has voted to approve the bailout."

"The Senate is supposed to serve, in James Madison's analogy, as the "cooling saucer" for the hot tea served up by the House--but in this case, it is the House that has remained cool and refused to panic. That's because the hysterical demand for a bailout didn't come up from the people; it came down from the elites in Washington and Manhattan. The House is reflecting the sensible skepticism coming up from the folks on Main Street who don't want to pay the bills for bailing out Hank Paulson's former colleagues on Wall Street."

"Some cold, realistic scrutiny of the bailout is desperately needed because this plan is not just an attack on the free market. It is an attack on reality. The financial crisis was caused by more than a decade of using government power to rewrite the facts of reality and override the judgment of the market, and the bailout just offers more of the same fantasy economics."

"Congress wanted everyone to be able to get a mortgage to buy a home, regardless of income, credit history, or ability to save for a down payment. The name for this contradiction was "affordable housing," an initiative aimed at providing the benefits of home ownership to those who could not, in fact, afford it. So when the market concluded that low-income borrowers could not meet the credit requirements for mortgages, the Clinton administration invoked trumped-up charges of racism to expand enforcement of the Community Reinvestment Act, bullying banks into dropping as "arbitrary" such old-fashioned credit standards as proof of income. And when the market balked at the increased credit risk created by these loans, Congress backed the expansion of Fannie Mae and Freddie Mac, government-sponsored enterprises that used federally guaranteed money to buy up the increasingly risky mortgages."

Full article.