Wednesday, September 24, 2008

A Case For The Bailout?

I am pretty susceptible to arguments against the federal government bailing out Wall Street. Part of my rationale is that federal regulations are very much to blame for the problems on Wall Street. Investors Business Daily has a pretty good diagnosis of the cause of the current financial crisis here.

Basically, banks were told to lend to uncreditworthy people in order to boost home ownership. As usually happens, when the government subsidizes something, it becomes more expensive and a real estate boom followed. The worst part is that the government's efforts to boost home ownership among certain minority groups didn't work. So the only solution was to throw more money at the problem.

Larry Kudlow, at NRO, has a convincing argument here for the bailout (and keeping Congress's hands out of the pot).
When the assets are worked out over time — as they will be once housing and the economy recover — taxpayers will actually make money on the deal.
This isn't some speculative venture either. It has been done before.
This is similar to the RTC story twenty years ago, when Bill Seidman presided over similar asset sales from bankrupt S&Ls and wound up making money for Uncle Sam and his taxpayers.

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