sandwichesandapples

I was riding my bike home today — 5pm in the bike lane, busy traffic around me you know? Up ahead I could see these two kids waving signs and shouting on the curb. I couldn’t read the signs.

As I got closer one of them — 12? 14 maybe? — steps off the curb into the bike lane in my path. His sign — part of a brown cardboard box with text scribbled in ball point — read “Obama is a liar.”

“Liar!” he shouted as I approached. As I passed him I gave him the most sarcastic smirk I do and an ironic thumbs up. I think my meaning was clear: “whatever, dumbass.” He obviously got it because as I rode on I heard him mutter “asshole.”

I just didn’t think it was my place to say, “they’re ALL liars, kid. They’re politicians.” I’ll leave that to his parents.

I can tolerate the naïveté of youth, the cute belief that a politician from one of the two identical major parties will change things for the better. But I won’t stand for shrill children with bad penmanship. Upon them, one must sneer.

What’s up with CNN having all this straight-up libertarian commentary?

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources.

Nice to see Ron Paul is still swinging:

I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.

Additionally, the government’s actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.

Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.