Thursday, December 11, 2008

Sunset (or Exit Strategy for) the Bailouts

This is so obvious it pains me not to have raised the issue before. I'm not sure how one would do it but like the Bush tax cuts, a sunset mechanism should be limiting these bailouts. I know once the money is spent it's gone. But the brakes should be put on somewhere. It is one of the problems of having lept so quickly into this mess. Would the economy be any worse today if none of the actions taken since October had not materialized? I can't know but doubt it with oil at $40.00/bbl.

From the WSJ:

Our emphasis on private ownership is directly tied to America's dedication to individual freedom. It's in our DNA. It is, in large part, why the United States came to be at all. Our Declaration of Independence is a recitation of the abuses of excessive government power. Our Constitution is a brilliantly crafted system of checks and balances to prevent that abuse by limiting government's authority over individuals -- including in the economic realm, where we're guaranteed our constitutional rights to liberty and property, to freedom from expropriation, and to freedom of contract.

But beyond that, beyond ideals of freedom, the national preference for private ownership is also based on the most basic practicality: It works.

Financial markets, of course, are not perfect. In particular, they are susceptible to boom-and-bust cycles...

Cycles of this sort have been a hardy perennial over the past 400 years of experience with organized markets. Addressing the results of these cycles is why we have protective mechanisms such as the Federal Reserve System and federal deposit insurance.
But clearly these mechanisms proved inadequate to prevent the current crisis.

For all of these reasons, it is incumbent upon federal policy makers to ensure that the extraordinary actions of the past months are understood to be temporary, and constructed so that they are self-liquidating. Since government programs do not on their own go away, there has to be a deliberate design to eliminate them, and a relentless adherence to execution of that plan. Anything short of this will almost certainly guarantee eternal life for these vast new federal roles.

Focusing on exit strategies now is of vital importance to ensure that we do not stumble along a dangerous path of confusion that may end in far greater financial exposure for the American people, and a far worse situation for America's taxpayers and investors. If we answer the tough questions now, and make sturdy plans for the future, we can position our mortgage market, our financial services industry, and the broader economy for renewed growth and prosperity.

1 comment:

Stephanie said...

I doubt it too, and we'll never know for sure which makes it politically hard not to do it. Sounds like some Repubs in the Senate may say no to the auto industry. I hope they mean it, but I'm betting they roll over (and we'll never know if there was an exchange for their capitulation -- or for anyone else's support).