The House got it right: No Socialization of Failed Businesses

by David K. Williams, Jr. | 1:16 pm, September 29, 2008 | Comments Off

At least for today.

Congratulations to the House for killing the bailout.

This article is telling. It shows some of the wrong-headed ideas behind the bailout in the first place.

To wit:

"Clearly something needs to be done, and the market dropping 400 points in
10 minutes is telling you that," said Chris Johnson president of Johnson
Research Group.

Yes, Mr. Johnson, something needs to be done. That something is the unemployment of the bankers that made bad loans. While we are at it, the worthless loans can be written off and any salvageable loans can be sold at market value. It's quite simple.

The value of the failed private businesses - and thus the stock market - has been artificially propped up by government regulation (Fannie Mae and Freddie Mac were government creations designed to issue sub-prime loans the market would not provide) and bad business judgment. Perhaps if Mr. Johnson's research group had been a little better at its job, he could have seen this coming and done something before running to Congress asking for taxpayer money to prop up worthless assets.

William Kaye, managing partner of the Great Asia Hedge Fund in Hong Kong, has it right.

He asked

"Why not let them go broke?" he said. "People who do stupid things should get
punished." He said the Paulson bailout reminds him of the piecemeal way Japan
let a banking crisis drag on throughout the 1990s by periodically rescuing banks
instead of allowing them to go out of business.

Artificially propping up the credit market will only prolong the agony. The market has to adjust. Short term pain is preferable to long term systemic failure.

Thankfully the House understands that.

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