The “rescue package” is a Trojan Horse folks. It is the method by which the banks are trying to convince us to allocate resources in a wasteful manner, to supposedly save society, when, in point of fact, nothing could be further from the truth.
The reason credit is drying up for “main street” as they so often put it, is because the failing banks are absorbing ever-more liquidity, while everyone else is left to fight for the crumbs. Let the bad banks fail, every last one of them, down to JP Morgan Chase.
If they can’t manage their affairs, they certainly can’t help us manage ours. They need to go and we need to move on.
The Rescue Package Will Delay Recovery
In his testimony to the Congress on September 24, Fed Chairman Bernanke urged the legislators to quickly approve the bailout of the financial sector with a package of $700 billion. Bernanke echoed Treasury Secretary Paulson’s view that the bailout expense, while hefty, is needed to remove from banks’ balance sheets the mortgage-linked assets, which are paralyzing the flow of credit.
I think it’s extraordinarily important to understand that as we have seen many previous examples in different countries and in different times that choking up of credit is like taking the lifeblood away from the economy.
Most experts came out in strong support for the package. Without the rescue package, many large institutions that are “too big to fail” could go belly up. Many believe that the consequences of all this could be very severe to the real economy.
It is true that the financial system must be rescued; it must be rescued from the institutions holding bad debt that are currently draining capital while waiting for a bailout and adding little in return. It is they that are preventing wealth-generating activities in the financial sector and the other parts of the economy from expanding real wealth.
The Essence of Economic Adjustment
Conventional thinking presents economic adjustment — also labeled as “economic recession” — as something terrible, even the end of the world. In fact, economic adjustment is not menacing or terrible; from an economic point of view, it is nothing more than a time when scarce resources are reallocated in accordance with consumers’ priorities.
Allowing the market to do the allocation always leads to better results. Even the founder of the Soviet Union, Vladimir Lenin, understood this when he introduced the market mechanism for a brief period in March 1921 to restore the supply of goods and prevent economic catastrophe. Yet for some strange reason, most experts these days cling to the view that the market cannot be trusted in difficult times like these.
If central bankers and government bureaucrats can fix things in difficult times, why not in good times too? Why not have a fully controlled economy and all the problems will be fixed forever? The collapse of the Soviet Union’s centralized system is the best testimony one can have that controls don’t work. A better way to fix economic problems is to allow entrepreneurs the freedom to allocate resources in accordance with society’s priorities.
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