Give Us Liberty by Dick Armey Read Free Book Online Page B

the Community Reinvestment Act and break up Fannie and Freddie, putting the pieces back in the private sector.
    If liquidity and the availability of capital were an immediate problem, the tax on capital gains could be repealed, along with other tax provisions that punish savings and capital accumulation. A flat tax does all of this in one fell swoop. And finally, the various distortions in corporate accounting hurriedly drafted during previous legislative panics could be repealed, starting with Sarbanes-Oxley.
    Most important, policies should have been designed to let the market work, not to attempt to artificially prop it up. The policy mistakes of the past dozen years could not be corrected without some pain. The only question left to decide was who would feel it. Markets do not work without allowing mistakes to be corrected and losses incurred. Bad actors on Wall Street or Main Street should suffer the financial losses produced by their bad bets and carelessness. Such losses, just like profits in good times, are vital to the functioning of markets. As then BB&T CEO John Allison noted in a September 2008 letter to Congress, “Corrections are not all bad 11 . The market correction process eliminates irrational competitors. There were a number of poorly managed institutions and poorly made financial decisions during the real estate boom.”
    Sadly, Washington did not focus on the fundamentals. With a lame duck in the White House and a bitter election to determine the next president and political control of Congress, lawmakers focused on the expedient rather than the efficient. A major roadblock to change is the necessity for sitting committee chairmen to acknowledge their own mistakes and repeal their favored programs. So Congress defended the failing government-sponsored entities Fannie Mae and Freddie Mac while crafting a taxpayer-funded bailout to avert any turmoil in an election year. Even more surprising, when the Senate passed sweeping financial legislation in May 2010, reforms of Fannie and Freddie were specifically rejected despite the utter failure of these bankrupt entities and their role in the financial meltdown.
    Government intervention into private enterprise of this magnitude always creates what monetary economist Gerald P. O’Driscoll Jr. calls “crony capitalism.” This philosophy, he says, “owes more to Benito Mussolini 12 than to Adam Smith. . . . Congressional committees overseeing industries succumb to the allure of campaign contributions, the solicitations of industry lobbyists, and the siren song of experts whose livelihood is beholden to the industry. The interests of industry and government become intertwined and it is regulation that binds those interests together. Business succeeds by getting along with politicians and regulators. And vice-versa through the revolving door.”
    Rather than address the problem, Congress asked the American people to fund the largest bailout of Wall Street in American history. The proposed solution to a problem created by easy money and easy mortgages was $700 billion in borrowed (or created) money to allow the government to buy dodgy mortgage-backed securities from failing Wall Street firms, the correct price of which Wall Street’s best minds could not calculate. The bailout socialized a big piece of our private financial system, granting the U.S. Treasury secretary full discretion to dictate winners and losers in this reshuffling of assets. Rather than addressing the underlying problems, the legislation simply allowed the Treasury to prop up failing investment houses that took on risks they should have avoided and investments they should not have made.
    THE PANIC BUTTON
    I T IS REMARKABLE HOW quickly both the formal and the informal constraints on government action either unravel or are simply ignored during times of crisis. Or, as Federal Reserve chairman Ben Bernanke so indelicately said during the height of the panic, “there are