It all started with the rescue of Bear Stearns. The government's reckoning that the foundational principles of our economic system could be ignored, just this once, was a colossal blunder. Now we have full-blown bailout mania.
Failure is as integral to the functioning of free markets as success. It is through failure that the outmoded or poorly performing are weeded out, making way for more dynamic players to take their place. It is the threat of failure that automatically rationalizes avoidance of excessive risk and does so much more efficiently than regulation ever could.
Don't forget that it was politicians who passed laws discouraging the credit checking of loan applicants and threatened banks that lacked enough high-risk loans on their books. It was politicians who created Fannie Mae and Freddie Mac to backstop questionable lending practices, allowed them to under-collateralize their liabilities, and ignored their obvious excesses. The low interest rates mandated by the Federal Reserve further inflated housing markets, and the rest is history.
Of course, perpetrators such as Sen. Chris Dodd and Rep. Barney Frank dismiss any notion that they could share some blame. Instead, they're demanding more regulation of financial institutions. But excessive regulation will drive capital out of the country when we need it most.
No revenue increases are contemplated to cover the massive new obligations, $1 trillion or more, being transferred from imprudent banks and mortgage holders to taxpayers. So like entitlement spending, earmarks, and everything else we don't have the decency to pay for ourselves, we're going to add to the national debt, kick the can down the road, and hope our children and grandchildren can figure something out.
Tom Patterson is Chairman of the Goldwater Institute, former state Senate Majority Leader, and an emergency room physician. A longer version of this article originally appeared in the East Valley Tribune.
Reuters: Fed comes to Bear Stearns' rescue
Investors Business Daily: The Real Culprits In This Meltdown
MarketWatch: Rep. Frank says markets need more regulation