Dear Arizona Taxpayer,
Pasted below is a column by AFP’s national policy director, Phil Kerpen. Although the national economy is not a zero-sum game like Monopoly, Kerpen draws some great comparisons with the ongoing bailouts. Perhaps his best point is that Americans dealing with the federal government these days are “playing Monopoly with a petulant child who makes up new rules as the game goes on.” Those who have read the histories of the New Deal by Jim Powell and Amity Shlaes will understand that Kerpen’s phrase is a concise description of FDR’s approach to public policy. More than any other policy factor (and there were many), it was the sheer unpredictability of New Deal policymaking that scared away investors and entrepreneurs and thereby turned a tough recession into the longest depression in American history.
And as a reminder, in case you happened to pass Go or land on “Free Parking” this year, please stop by our AFP donation page sometime before New Year’s Eve: http://www.americansforprosperity.org/donate
Any amount you can give will be greatly appreciated!
For Liberty,
--Tom
Tom Jenney
Arizona Director
Americans for Prosperity
(Arizona Federation of Taxpayers)
www.aztaxpayers.org
tjenney@afphq.org
(602) 478-0146
http://www.philkerpen.com/?q=node/205
The Free Parking Economy
Phil Kerpen
December 15, 2008
I’m always amazed at how many people don’t know the official rules of Monopoly, or prefer to play by their own Folk Rules. I’m amazed because most of the Folk Rules make the game virtually unplayable—cash for landing on Go, cash for rolling snake eyes or boxcars, and most notoriously cash for landing on Free Parking. They inject so much extra cash in the game that nobody ever goes bankrupt. The weak players hang on for hours, and it never gets down to the exciting part of the game, where only the strong players are left and they battle it out according to their respective skill and, of course, the roll of the dice.
Welcome to the Free Parking economy.
The Fed and the Treasury have now pumped over $5 trillion into the financial system to keep Fannie Mae, Freddie Mac, AIG, Citigroup, and the rest afloat. The automakers were seemingly denied their bailout in a tense and ostensibly high-stakes Senate debate, but then the White House decided to bail them out anyway. Congressional Democrats and President-elect Obama are putting the touches on a new so-called stimulus plan that will pour hundreds of billions of dollars in new federal spending into the economy.
With all that money sloshing around, a lot of businesses that should go bankrupt won’t. Reward is being decoupled from risk. The banks that played it safe, kept their balance sheets clean, and maintained responsible underwriting standards should be gaining market share like crazy right now. They aren’t. The losers are being given big piles of Free Parking cash to keep rolling the dice.
What’s worse is that nobody can be sure what the rules of the Free Parking economy are—it’s like playing Monopoly with a petulant child who makes up new rules as the game goes on.
Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke made their sales pitch on Capitol Hill based on the idea of troubled asset purchases, then quickly reversed course and invoked provisions added to the bailout bill by Reps. Barney Frank and Spencer Bachus to instead inject equity directly into banks through the purchase of preferred stock. After Treasury announced that there would be no purchases of troubled assets after all in the now-misnamed Trouble Asset Relief Program, the Fed announced that it would create a new facility for troubled assets.
The TARP was supposed to create a comprehensive, predictable crisis response to bring some certainty to markets, but it has had the opposite effect, as its implementation has been erratic. When Citigroup faltered, it received a custom-made bailout package of asset-guarantees and direct cash injections that looked a lot more like the Bear Stearns and AIG rescues than something orderly under a comprehensive program.
Unfortunately, Congress is lurching from crisis to crisis with no serious effort to restore predictability. Instead, the next Congressional action is shaping up to be a supersized stimulus bill that funds everything on the political wish list, shoveling hundreds of billions more taxpayer dollars out of the U.S. Treasury. It’s money that will keep the bad players playing even longer, which any Monopoly player could tell you makes for a tedious, long, and miserable affair.
Mr. Kerpen is director of policy for Americans for Prosperity.
I’m always amazed at how many people don’t know the official rules of Monopoly, or prefer to play by their own Folk Rules. I’m amazed because most of the Folk Rules make the game virtually unplayable—cash for landing on Go, cash for rolling snake eyes or boxcars, and most notoriously cash for landing on Free Parking. They inject so much extra cash in the game that nobody ever goes bankrupt. The weak players hang on for hours, and it never gets down to the exciting part of the game, where only the strong players are left and they battle it out according to their respective skill and, of course, the roll of the dice.
Welcome to the Free Parking economy.
The Fed and the Treasury have now pumped over $5 trillion into the financial system to keep Fannie Mae, Freddie Mac, AIG, Citigroup, and the rest afloat. The automakers were seemingly denied their bailout in a tense and ostensibly high-stakes Senate debate, but then the White House decided to bail them out anyway. Congressional Democrats and President-elect Obama are putting the touches on a new so-called stimulus plan that will pour hundreds of billions of dollars in new federal spending into the economy.
With all that money sloshing around, a lot of businesses that should go bankrupt won’t. Reward is being decoupled from risk. The banks that played it safe, kept their balance sheets clean, and maintained responsible underwriting standards should be gaining market share like crazy right now. They aren’t. The losers are being given big piles of Free Parking cash to keep rolling the dice.
What’s worse is that nobody can be sure what the rules of the Free Parking economy are—it’s like playing Monopoly with a petulant child who makes up new rules as the game goes on.
Treasury Secretary Hank Paulson and Fed Chair Ben Bernanke made their sales pitch on Capitol Hill based on the idea of troubled asset purchases, then quickly reversed course and invoked provisions added to the bailout bill by Reps. Barney Frank and Spencer Bachus to instead inject equity directly into banks through the purchase of preferred stock. After Treasury announced that there would be no purchases of troubled assets after all in the now-misnamed Trouble Asset Relief Program, the Fed announced that it would create a new facility for troubled assets.
The TARP was supposed to create a comprehensive, predictable crisis response to bring some certainty to markets, but it has had the opposite effect, as its implementation has been erratic. When Citigroup faltered, it received a custom-made bailout package of asset-guarantees and direct cash injections that looked a lot more like the Bear Stearns and AIG rescues than something orderly under a comprehensive program.
What the economy now desperately needs is a rulebook that can be counted on. Some sweeping reforms certainly are needed to prevent a recurrence of the credit bubble, especially in the housing space where Fannie and Freddie used their political clout to expose taxpayers to enormous risk under the banner of universal home ownership. But simple policy stability is even more important than the specific reforms that are enacted. A final regulatory overhaul that establishes the rules of the game (including when and if public funding will be used to address systemic risks) would alleviate the moral hazard and unpredictability that underlie current market insanity, and
would in turn create a stable footing for recovery.
Unfortunately, Congress is lurching from crisis to crisis with no serious effort to restore predictability. Instead, the next Congressional action is shaping up to be a supersized stimulus bill that funds everything on the political wish list, shoveling hundreds of billions more taxpayer dollars out of the U.S. Treasury. It’s money that will keep the bad players playing even longer, which any Monopoly player could tell you makes for a tedious, long, and miserable affair.
Mr. Kerpen is director of policy for Americans for Prosperity.
No comments:
Post a Comment