Tag Archives: bailout

Fixing TARP: Is Transparency Enough?

bailout

The House is voting today on a bill to improve transparency in the TARP bailout program. TARP is, shall we say, rather opaque. 25 different agencies administer TARP funds. Each one uses different accounting standards. Keeping track of everything almost impossible.

I wrote an article not too long ago saying that transparency is welcome symptomatic relief. But TARP itself is a disease. The only way to cure the disease of bailout programs is to abolish them. Russ Roberts said much the same thing:

[C]apitalism is a profit and loss system. The profits encourage risk-taking. The losses encourage prudence. If the taxpayer almost always eats the losses for the losers, you don’t have capitalism. You have crony capitalism.

Transparency is a good start. But the goal should be to not have government bailing out politically favored companies in the first place.

Goldman Sachs and Crony Capitalism

Over at NPR, George Mason professor Russ Roberts looks at why Goldman Sachs prospers as Bear Stearns and Lehman Brothers die, despite following more or less similar business practices. Key point:

[C]apitalism is a profit and loss system. The profits encourage risk-taking. The losses encourage prudence. If the taxpayer almost always eats the losses for the losers, you don’t have capitalism. You have crony capitalism.

The content deserves close study. So does the delivery; Russ is one of the clearest economics writers there is.

Markets and Special Interests

ludwig-von-mises
Detractors of capitalism decry that it caters to special interests. The opposite is actually true. Just look at what’s happened in the last year.

Most of Wall Street came to government asking for a bailout when the government-created housing bubble popped.

The Big Three automakers also went to Washington for largesse when their customers came to prefer Toyotas and Hondas.

Health insurance companies stand to make a killing if Obamacare passes.

T. Boone Pickens and Al Gore would make millions from environmental legislation.

Ludwig von Mises explained the reason for all of this corrupt behavior with a single sentence back in 1949: “It is precisely the fact that the market does not respect vested interests that makes the people concerned ask for government interference.”
Human Action, 4th Edition, p. 337.

TARP Transparency: A Good Start, but Not Enough

The new issue of the CEI Planet has an article of mine about proposed legislation to make the TARP bank bailout program more transparent.

Main point: more transparency would alleviate some of TARP’s symptoms. But TARP itself is a disease. The sooner Congress gains the political will to recover from its bailout fever, the better.

You can read the rest of the Planet here.