Henry Paulson knows best

Posted in Society at 20:44 by RjZ

Simple question: if thousands of Wall Street professionals were unable to avoid the demise of their corporations as a result of bad decisions, what, aside from politics or enormous egos, makes anyone in government think they can do a better job? What, in our collective experience, gives us the impression that the Federal Reserve and the Department of the Treasury are better suited to predict the future of finance markets better than people whose livelihoods depend on it? Golden parachutes aside, many folks have already lost their jobs thanks to the current financial meltdown, and the majority didn’t see it coming.

Whether or not a bailout of these huge financial institutions makes sense right now isn’t even my point. My question is why would we think that, after bailing these corporations out, that they would be better managed by the government?

Am I suggesting there should be no regulations imposed on banks? Not exactly. The function of a capitalistic system requires rule of law. Banks and financial institutions must clearly state what they’re doing with my investment and then they have to do that. The government must regulate this to ensure that rule of law is followed and that transparency is maintained. Beyond that it’s buyer beware. The government goes beyond this and kindly offers insurance on certain kinds of investments. Those investments are more tightly regulated and offer, accordingly, lower returns. Regulations like the ones that ensure our food doesn’t contain poison don’t tell people how to prepare food or what we can eat. Regulations on our money supply should have a similar scope.

Even if we, U.S. taxpayers, take on $700 million in debt, nothing will change. Businesses will come into being who are outside of the regulations and they will offer better returns. People will decide that the risk is worth while and will invest.

Whether or not we find ourselves today in a situation where it makes sense to bail out wealthy bank owners, their employees, and in turn folks who for good or bad reasons made unwise investments is beyond this post. Politicians on the right and the left are taking advantage of the many mistakes that were made and demanding more power be concentrated in Washington, but they have given no justification for how that would actually avoid these mistakes in the future.

1 Comment »

  1. Traveling Hypothesis » Only the second best said,

    September 29, 2008 at 9:44

    [...] Tom Wolfe did some (limited, but at least real) research before arriving to the same opinion I had. The U.S. government is edging closer to putting the control for hundreds of billions of our tax dollars into the control of very few people. [...]

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