My Vote: NO
Dealing with the deal.


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. The $700 billion intervention is just the largest, latest in a series of failed bailouts with no guarantee that the desired outcome will even be achieved.

As a Public Choice professor, I used to begin class each semester with Armey’s Axiom number one: “The market is rational and the government is dumb.” 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.

 – Dick Armey was the House Majority Leader from 1994 to 2003, and currently is the Chairman of FreedomWorks, a national grassroots organization dedicated to lower taxes, less government, and more freedom.