So a number of people including relatives, have emailed me to see what I thought about the House vote yesterday.
If you read my commentary at LRC, Mises or AWC it probably is no surprise that I’m against the bailout. Here are two resources I think help explain the situation the best:
As far as the boilerplate that we all have been subjected to, there really is no credit crisis per se.
The firms that have terrible credit ratings only have themselves to blame for using the charge card — no one forced them to loan potential homeowners money or to buy risky assets. Or rather, to the dismay of the banking establishment, the credit markets are doing what they are supposed to: lend to those that can repay, and not lend to those that can’t.
Look at it this way, as individual consumers, you and I all have credit scores (FICO) which allow banks and financial firms to gauge your ability to repay loans.
If you have a relatively high credit rating (say, a 650 or more) and have proof of income, you are still able to take out a loan, purchase a car or even remain bombarded with credit card applications. Sure the interest rates may be a little higher across the board, but the credit is still there.
In contrast, if you currently have a low credit rating (450) and only a part-time job, most lending standards would screen you out for credit cards (though you never know until you try!).
Anyways, the “credit crunch” as Robert Higgs has pointed out, is only effecting those institutions with crappy credit ratings. And for good reason, they are deadbeats with assets that continue to diminish in value. So why lend to them?
Or rather, why force taxpayers, who are already responsible for their own lives, to pay for the mistakes of others?
Unfortunately I think this will be a short lived victory, especially considering how hard the political elite from both parties is pushing this.
And to make matters worse, while Congress was prevented from taxing you directly, the Fed pumped $630 billion into the market yesterday without so much as a vote. And guess who pays that tax? Anyone with USD denominated assets.