"The trouble with the world is that the stupid are cocksure and the intelligent are full of doubt." -Bertrand Russell
Yesterday sent the best news we've had in months. It's good to see that sometimes the system works, at least when people respond in substantial quantity to make elected officials fear either: a) losing their job, or b) showing their face in town back home. What better way to head into the fourth quarter than to learn that our Representatives have rejected the federalization of our nation's banking system?
Oh sure, the market dipped. For a day. And I'm sure that the market corrections aren't complete yet. But the best news came today when the market regained ground on new investments in the market. Could it be possible that people were just holding out while the prices might have been artificially inflated, waiting for a deal? I think it's highly possible. Seriously, think about it. Banks like Wachovia were waiting to sell their assets at a loss. Why wait?
Let's make up some numbers for illustration. Let's say that Good Bank is interested in buying Bad Bank's poor assets for 25 cents on the dollar. That's a huge loss for Bad Bank. Why would they sell for 25 cents on the dollar when the government might give them 50 or even 75 cents on the dollar? Heck, all they have to do is wait it out. What do they have to lose? The value has already tanked. You probably know as well as I do that the government has a track record of paying too much for things of little value. The only seeming exception is in cases of abuse of eminent domain where the complete opposite is true.
People haven't been investing on purpose. It's been too unpredictable and everyone loves a deal. Guess what we have now. A little more certainty that this crap bailout probably won't happen soon and bargain basement prices. Holy crap, the free market at work!
Sure, there's the short term credit crisis. But the problem was created exactly by short term thinking. Let's get in, boost the balance sheets with little to no regard for what they'll look like in 5-6 years, make our money, and move along before the chickens head home. What's going to happen eventually? Someone will realize that there is money to be made in lending and they'll do just that. Perhaps a little more judiciously than in recent history.
We don't need more government intervention, we need less. This garbage housing bubble was created exactly by government intervention in free markets. Hit Google up for some info on the Community Reinvestment Act, a deceptively named proposal like most bills in Congress (Wikipedia's take is in question these days due to multiple edits per hour lately). Notice that it wasn't created or expanded in the last eight years as most talking heads would have you think this problem was created. The system worked well before that legislation, less well after, and even worse after expansion. So why are we looking to Washington to fix their screw-up with another screw-up? And exactly where in the Constitution does it authorize them to do so anyhow?
UPDATE: Here's a fun video to back up some of my statements.
I had found a page yesterday showing campaign contributions from Fannie and Freddie. It'd be interesting to see how these guys voted on saving the GSE's and how they do on the current bailout.