You really need to read the whole thing (National Review Online), but here are the juiciest paragraphs from the former House Majority Leader:
Too often, it seems that self-professed small-government conservatives come to this town to fight the good fight. Somehow, we do things we ought not to be doing in order to stay in office so we can do things we ought to be doing. But we never actually get around to doing the right things.
The difficult question each member of Congress faces today is simply this: Do you believe that the political process, having produced many of the perverse incentives that resulted in our economy’s current predicament, can solve these underlying distortions by essentially doing more of the same? I believe the answer to this question is unequivocally NO.
. . .
As a free-market economist I unequivocally oppose this legislation because it violates the basic working tenets of free-market capitalism and individual responsibility.
Granting the Treasury broad authority to buy troubled assets from private entities poses a significant threat to taxpayers and fundamentally alters the relationship between the private economy and the federal government. Despite the sweeping breadth of the proposed bailout, there is virtually nothing in the bill that addresses the underlying problems that created the housing bubble and the oversized and over-leveraged financial services sector that grew with it. Taxpayers have become Wall Street’s newest financier, with little more than a promise — and a report to Congress on “regulatory modernization” — that Congress will not let this happen again.
. . .
The painful readjustments in the housing market are a direct result of failed government policies that fueled the housing bubble. A political bias that favored home ownership (through the tax code and programs such as the Community Reinvestment Act, coupled with the implicit — now explicit — federal guarantee of the government-sponsored enterprises Fannie Mae and Freddie Mac, led to a housing boom fueled by loans that were often not worth the paper they were written on. At the same time, ratings agencies, under the auspices of the SEC, vouched for the quality of these loans, allowing them to be bundled into new financial instruments and sold around the world. The Federal Reserve aided and abetted these distortions with loose monetary policies that distorted price signals, artificially boosted investments in the housing sector, and ultimately throughout the financial services sector as mortgages were securitized and repackaged for sale across the globe.
Despite the publicly voiced concerns of many of us — both in and out of government — about Fannie and Freddie, the GSEs’ defenders in Congress turned a blind eye to the inherent weaknesses in the system . . .
The large government intervention that Congress is proposing would create changes whose effects will linger long into the future. The Treasury plan would fundamentally alter the workings of the market, rewarding poorly run investment firms at the disadvantage of prudent ones, and transferring the burden of risk to the taxpayer. At the same time, the $700 billion proposal does not offer fundamental reforms required to avoid a repeat of the current problem. Congress has been reluctant to reform the government sponsored enterprises that lie at the heart of today’s troubled markets, and there is little to suggest their resolve to pass the necessary reforms will increase in the wake of a bailout.
In addition to the moral hazard inherent in the proposal, the plan makes it difficult to move resources to more highly valued uses. Successful firms that may have been in a position to acquire troubled firms would no longer have a market advantage allowing them to do so; instead, entities that were struggling would now be shored up and competing on equal footing with their more efficient competitors.
The financial services sector is over-leveraged and too large. Winding this down will, indeed, impose painful costs. Congress is seeking to explicitly transfer these costs to taxpayers, who will underwrite a new government plan devised to correct the old government plans. Taxpayers are being called upon to make a significant sacrifice, with little evidence to suggest that the troubled markets will be settled. In fact, there is evidence to suggest that the latest intervention will delay the required adjustments in the financial services sector.
. . . Those quick to call for more regulation forget the power of markets, and refuse to acknowledge government culpability in the current mess. Time and again, governments the world over have attempted to outsmart the market and the current legislation is no exception. And time after time, markets respond, toppling the best-laid government plans as they move to correctly price the underlying assets in exchange.
What I wouldn’t give to have Armey back on the Hill representing his old Texas district.
[...] this, having been in the panic-infected hothouse of Washington and all, but there were several economic and financial experts who were immune to the panic, and realized that the “cure” of the [...]
[...] this, having been in the panic-infected hothouse of Washington and all, but there were several economic and financial experts who were immune to the panic, and realized that the “cure” of the [...]
[...] auto markets: Dick Armey, an economist before and after he was a Congressman, noted this problem in his objections to TARP two years ago. We tend to forget this now, but the banking sector was on its way to sorting [...]
[...] auto markets: Dick Armey, an economist before and after he was a Congressman, noted this problem in his objections to TARP two years ago. We tend to forget this now, but the banking sector was on its way to sorting itself [...]