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Credit Crisis Part 4: per Downsize DC
Considered consensus of DDC analysts:
Do not proceed with the $700 billion "stimulus"
by Jim Babka and Perry Willis, Downsize DC

Reprinted by permission, CC

Note: This guest column actually consists of two articles written under auspices of the liberty lobbying (note lowercase) organization, Downsize DC.  I'm reposting the more recent September 24 article first, because it represents the latest conclusions of Messrs Babka and Willis regarding the so-called crisis bailout plan currently before Congress.  Conclusion: Do not, repeat do not, proceed with bailout.  Below that I've posted
the September 22 deliberations,
in which Mr. Babka had suggested perhaps a scaled-down "bailout" is the best we could hope for.  My sense—like McCain, economics is not my strongest suit—is Jim and Perry have hit the nail on the head... and with the right hammer.

Text of letter to Downsize DC subscribers 9/24/08:

Quote of the Day:

"The government broke it. I don't trust them to fix it."
—Jim DeMint, Republican, South Carolina

Subject: Downsize DC committing suicide?

We've heard the Treasury Secretary and the Federal Reserve Chairman make their case for a $700 billion bailout of the financial markets. We're not persuaded. Quite the contrary. We reject their predictions of dire consequences if their plan doesn't pass. We're so convinced of this that we're willing to stake our continued existence on it.

If the economy goes into a deep slump because they didn't pass their bailout plan then charitable contributions will be among the first things cut from family budgets. If we're wrong then we'll be among the many institutions to fail. But we don't believe we're wrong. And we don't believe we'll fail.

In 2003 dire warnings about "weapons of mass destruction" were used to justify an unnecessary war in Iraq. We bucked the tide of public hysteria and dared to claim that there were NO "weapons of mass destruction" in Iraq. We were right, and popular opinion, driven by political fear mongering, was wrong. Now we're being told that our economy is threatened by "financial weapons of mass destruction,"
and we'll once again buck the hysterical trend by predicting that:

  • There are no "financial weapons of mass destruction" threatening our economy... except for the $700 billion bailout plan.
  • We don't believe that mortgage defaults on a mere 3 million homeshave the power to halt the mighty American economic engine. It's really that simple.

Many wild claims are being made. Yesterday, on CNBC, Jim Cramer predicted a Great Depression II if the bailout plan isn't passed. Cramer is even willing to let the Democrats cap CEO pay and take ownership positions in troubled firms (socialism), if that's what it takes to pass the bailout plan. Cramer, despite his great intelligence and personal charm, is madly, hysterically, wrong.

Of course, the fear mongers will claim that we had a 40% foreclosure rate in the Great Depression precisely because the government didn't intervene soon enough, and that current foreclosure rates will spiral out of control if the bailout bill isn't passed. This reading of history gets the true story of the Great Depression exactly backwards...

The myth is that President Hoover did nothing after the stock market burst in 1929. Nothing could be further from the truth. In fact, Hoover actually began the kinds of interventions that are commonly associated with FDR.  Roosevelt was merely copying, and dramatically expanding on what Hoover had already done, not setting a new course. And look at what the results were... a Great Depression that lasted for 12 long years!

Hoover and Roosevelt both tried to stop market prices from falling, which is exactly what the current proposal aims to do. But the result in the late 20s and early 30s was that the market never cleared, and so the Depression went on and on and on. We could have the same thing again today if we allow the government to once again intervene in natural market processes.

The fact is that the politicians, the bureaucrats, and various hysteria mongers, are misleading us. They tell us that the market is frozen, but the fact is that commercial loans are at an all-time high, and even real estate loans ARE HIGHER THAN THEY WERE LAST YEAR! The fact is that...

The current "crisis" is mainly centered among the highly leveraged investment banks on Wall Street, but even there the market is far from frozen. Merrill Lynch was able to sell its bad assets and was then bought by Bank of America (which had earlier bought CountryWide).

Does this look like a frozen market to you? It doesn't to us.

And would it really matter if the markets were "frozen?" Inactive markets simply mean that buyers and sellers of assets have a disagreement about what those assets are worth. We must not allow the politicians and the bureaucrats to substitute their judgement for the judgements of buyers and sellers who are, after all, SPENDING THEIR OWN MONEY, whereas the politicians and bureaucrats are asking to spend YOUR MONEY!

We've taken the time, and shown the courtesy, of hearing our "leaders" speak, and having done so, WE REJECT THEIR CLAIMS! THEIR MUST BE NO BAILOUT, OF ANY KIND!

Please be clear about what we're NOT saying. We're NOT saying that things are rosy, or even all that good. As we explained Monday, we're feeling the effects of a FED-generated bubble pop. We are very simply saying that a bailout is wrong-headed and unnecessary, and could even make things worse.

If you agree with us, please tell your elected representatives to OPPOSE ALL BAILOUTS! You can use our generic campaign for cutting federal spending to send your message. Use your personal comments to reject the bailout and to make any of the points we've made in this message, or additional arguments of your own. You can send your message using our Educate the Powerful System.

But don't stop there. Please take the following additional steps:

  • Call your Representative and your two Senators after you've sent your message
  • Pass this Dispatch to others—SOUND THE ALARM AND SPREAD THE WORD
  • Register for a Digg account, and then Digg this message on our blog

Finally, we've staked our existence on our principles and our best judgement. We expect to thrive, not die. But we are struggling in this economy too. Many DC Downsizers have had to cut their pledges because of the current downturn. Some have lost their jobs. We really need those of you who are still doing well to come to our aid. We especially need new monthly pledges to replace $400 a month we've lost so far this Summer. You can make a contribution here.

Thank you for being a part of the growing Downsize DC army!

Jim Babka & Perry Willis
President & Communications Director, Inc.

P.S. This morning, I was on Brad Davis' show on WDRC-AM to talk about the first annual, "Connecticut Liberty Forum," to be held September 27-28, 2008. I'll be back on Brad's show on Saturday morning (9/27), just hours before I speak about "Making Congress Accountable to the Constitution." Also appearing at this Bristol, CT event, will be:

  • Michael Cristofaro, Plaintiff in the New London, CT eminent domain case, will talk about that case, after he and Susette Kelo are presented with the very first Connecticut Freedom Fighter Award.
  • Robert Levy, Senior fellow in Constitutional Studies, CATO Institute. His topic: "Is the Supreme Court Eroding Our Liberty?" Mr. Levy will stick around to sign copies of his new book, "The Dirty Dozen: How Twelve Supreme Court Cases Radically Expanded Government and Eroded Freedom."
  • Also speaking... DC Downsizer Alan Schaeffer, Alliance for the Separation of School & State; DC Downsizer Dr. Robban Sica, Vice President of CT Health Freedom Coalition; DC Downsizer and Attorney Deborah Stevenson, Executive Director of National Home Education Legal Defense; Bob Schulz, We the People Foundation; Dr. Katherine Albrecht, co-author of "Spychips," and more.

I want to encourage you to come to this event -- to meet me and hear the other speakers. Please use the code "Downsize DC" to get a discount when you register in advance. Complete details can be found at

And if you're coming to Bristol, CT, please let me know by hitting Reply to this message TODAY. My wife Sue and I like to make time to meet with DC Downsizers when we're traveling. We will be in touch.


Text of letter to Downsize DC subscribers 9/22/08:

Quote of the Day:

"It's a rather brief bill, with lots of money."
—Senator Chris Dodd

Subject: Can we downsize the Big Bailout?

Today's message is a complex one. It's pretty clear to us that few politicians understand the financial crisis before us—particularly their role in creating it. But I have confidence in the ability of DC Downsizers to understand what we write here.

So what about Treasury Secretary Paulson's Big Bailout Plan...

Here's some "good" news: The legislation authorizing the Big Bailout of U.S. financial institutions in only 3 pages long. This means that every member of Congress is likely to read it, even though the "Read the Bills Act" isn't yet the law of the land.

Here's some really bad news: The bailout legislation is only 3 pages long, meaning that all the details are going to be left to the unelected bureaucrats in the Treasury Department. This is the kind of thing our "Write the Laws Act" was designed to avoid.

Here's some more bad news: The 3-page bill is likely to grow longer as members of Congress rush to stuff it with special projects.

Here's even more bad news: The bill will raise the federal debt limit from $10.6 trillion to $11.3 trillion, and authorize the Treasury Secretary to buy distressed assets to the tune of $700 billion. This will be the largest expansion of government, and increase in the national debt, in the shortest amount of time, in the history of the country.

Here's some "good" news: The authorization for the Treasury Secretary to buy distressed assets will only last two years, but...
That's also bad news, because politicians and lobbyists will then have two years to wrangle sweetheart deals for themselves.

Here's more "good" news. Many "experts" believe the federal government will be able to turn a profit on this deal, much as happened with the Savings & Loan liquidations in the 80s and 90s. But that's also bad news, because... If this can be done at a profit then why does it need to be done by the government at all? Why couldn't the bad assets be liquidated through the normal bankruptcy process?

One answer, of course, is that other companies could fail too as the firms currently in trouble start to no-pay or slow-pay their bills under the bankruptcy process. But wouldn't such failures be good for the economy going forward, as firms change their behavior to reduce risk, thereby making a future repeat of this episode less likely?

Those who favor the bailout argue that they're trying to avoid panic, which could destroy companies that are perfectly sound. Unfortunately, the last time the federal government intervened in such a major way to prevent panic the pain lasted for 12 long years. It was called the Great Depression. Prior to that...

Financial contractions had been short and sharp. Prices, wages, and employment fell quickly to clear the market and then things started moving forward again. The federal interventions of the 1930s prevented the market from clearing and thereby preserved the misery for more than a decade. On the other hand...

Those who favor intervention can point to the S&L liquidation of the 80s and 90s, which did not result in a prolonged contraction. This is probably the strongest argument for the current proposal. Therefore, those of us who favor smaller, limited government must be prepared to deal with it. One counter argument is that the government is using your money to bail out the fat cats, but...

This argument is no longer as strong as it once was. Many more Americans own both stock and real estate than was the case during the Great Depression, or even during the S & L crisis. Many of us are also dependent on private pension funds that are in turn dependent on both the stock and real estate markets. An argument can be made that most of us are being bailed out, not just the fat cats. But this contention also overlooks one crucial point...

We're all going to pay the price for bailing ourselves out. We can either pay the price through asset devaluation or through increased government spending. Either way, the price is going to be paid. There is no such thing as a free lunch. An argument can be made that the price could be higher or lower if we simply let these companies fail, or if the bailout proceeds, but the fact is...

The bailout is very, very likely to happen, and to happen quickly. We need to find a way to react to that. But we also need to be proactive.


The two key words here are react and proactive. First of all, how should we react to the bailout?

We think you should oppose it, on general principles, and to make the politicians both nervous and cautious about how they proceed, especially in terms of manipulating the bailout to reward friends and punish enemies. You can use our general campaign to cut federal spending for this purpose. Use your personal comments to tell Congress you oppose the bailout. You can send that message using our easy-to-use Educate the Powerful System.

Second, we need to be proactive in terms of how the bailout is handled. The Democrats in Congress say they want to adjust the bailout bill to make sure the taxpayers benefit if the bailout turns a profit in the same way the S&L liquidation did. This sounds good. The problem is that for Democratic politicians having the "taxpayer benefit" is often code for giving Congress more money to spend to supposedly benefit the taxpayer. We need to make sure that...

Proceeds from the asset liquidation are used first to retire the debt the government assumes to fund the liquidation, and that any net profits from the sale of these assets is used either to reduce taxes, or rebate taxes to YOU. You can use our general cut taxes campaign for this purpose. Use your personal comments to ask for the provisions in the above paragraph. You can send that message using our free Educate the Powerful System.

Finally, I said we need to be proactive—that we need to chart a course to make sure this current crisis doesn't happen again. We need to start campaigning to end of all of the various means by which the federal government creates asset bubbles, including but not limited to the Federal Reserve. This is going to be a major undertaking. We hope we will have your continued support to make it happen. You can contribute to our work at our website.

Or you can print out the form at that same link, and mail a check to the address listed there. Thank you for all you do as part of the growing Downsize DC Army.

Jim Babka
President, Inc.


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