It's the incentives, stupid

Did you say something about bailing out fat cats? Is there food involved? Baby Cakes stares down from atop the kitchen cabinets this afternoon in the afterglow of a crazy-hour episode that saw him galloping down the back stairs, banking with spinning wheels around the corner into the kitchen and then leaping from floor to counter to cabinets in the twinkling of an eye.

"I saw you on C-Span this morning, keeping your head while all around you -- Nancy Pelosi and Barney Frank the first among equals -- were losing theirs," we emailed Minnesota Congresswoman Michele Bachmann, a member of the Financial Services Committee, this morning. Her bio — working mother of five, first Republican woman to be elected to the US House of Representatives from Minnesota, "reputation as a 'principled reformer' who stays true to her conservative beliefs," induces incoherence in leftist elitists — is reminiscent of Sarah Palin's. She voted "no" on the bailout yesterday, and she calls a toad a toad at her TownHall.com blog, citing Investor's Business Daily's "'Crony' Capitalism Is Root Cause of Fannie and Freddie Troubles":

"In the past couple of weeks, as the financial crisis has intensified, a new talking point has emerged from the Democrats in Congress: This is all a "crisis of capitalism," in socialist financier George Soros' phrase, and a failure to regulate our markets sufficiently."

Incentives are all. Reward bad behavior, and you get more bad behavior. It depends upon what your definition of bad behavior is, of course. One man's (Tuck's) delight at Baby'e "Mr. Paw" begging for treats off his dinnerplate is another man's shock at poor table manners.

The true believers — those "Honest Leadership and Open Government" Democrats we blogged about yesterday and their fellow travelers in the media — are predictably projecting responsibility for the unintended consequences of their own bad behavior onto "the private sector" (Barney Frank) and, of course "the Bush Administration’s failed economic policies" (Nancy Pelosi). As Jonah Goldberg writes in "No one's clean in this mess":

Frank, chairman of the House Financial Services Committee, has spent the last few years ridiculing Alan Greenspan, John McCain and others who sought more regulation for Fannie Mae's market-distorting schemes — the fons et origo (source and origin) of this financial crisis. Now he says "the private sector got us into this mess." His partner in crime, Senate Banking Committee Chairman Christopher J. Dodd (D-Conn.), a chief beneficiary of Fannie Mae lobbyists' largesse, claims this mess is the result of poor oversight — without even hinting at the fact he is in charge of oversight of banks. They sound like pimps complaining about the prevalence of STDs among prostitutes.

And let us not forget that the Democrats, with a 31-seat majority, could not get 95 of their own to vote for the bailout, largely because it didn't provide enough taxpayer money to their left-wing special interests. Would that they thought about the country.

The one man who truly tried to treat this crisis like a crisis — McCain — was ridiculed by Senate Majority Leader Harry Reid, who implored him to come to Washington to help in the first place. And the news media, which now treat any Republican action that threatens a Barack Obama victory as inherently dishonorable, uncritically accepted the bald Democratic lie that McCain ruined a bipartisan bailout deal last Friday.

What does go on in that black hole we call the "progressive" mind? We got a glimpse from a confessional offering by Ariannna Huffington, who's convinced following her conversion that only more government can save us:

Ronald Reagan, in his first inaugural address, famously declared that "government is not the solution to our problem; government is the problem."

Twenty-seven years later, in the midst of the worst economic crisis since the Great Depression, and seven-plus years into the reign of Bush and Cheney, Reagan's anti-government battle cry should be on trial. But, stunningly, it is not …

The shift in my own thinking on the role of government was what led to my disillusionment with the Republican Party and the transformation in my political views. I've always been progressive on social issues: pro-choice, pro-gun control, pro-gay rights — even when I was a Republican. The big difference is that I once believed the private sector would address America's social problems. But the hope that people would roll up their sleeves and solve this country's social ills without the help of government was never fully realized. There were never enough volunteers or donations — and the problems were just too massive and intractable to tackle without the raw power of appropriations that only government can provide.

A fiscal conservative/social liberal mind is a terrible thing to lose.

Being a member of the red-in-tooth-and-claw community, the Babe has been intimately familiar with the economic logic of nature and feline nature from day one.

Unlike Huffington's later-in-life loss of common sense, the political conversion regarding fiscal philosophy usually goes in the other direction, as playwright David "Why I am No Longer a 'Brain-Dead Liberal'" Mamet and our good friend and fellow Pajamas Media Network blogger  Neo "A mind is a difficult thing to change" Neocon — among other thoughtful former liberals mugged by reality — can attest. As we've blogged here early and often, "The leftist utopian dream was doomed from the start because it denied the economic logic of nature and human nature." It's the incentives, stupid (yes, you, Arianna). Speaking of incentives, we loved Dale Franks's take on the story of the hour [via Fausta]:

So we’re in the middle of this crisis because the Government of the United States created the incentives that caused it.

And with all this current talk of making the bad actors pay for their sins, you’ll notice that no one is talking about changing the government’s policies that caused this. It’s never the government’s fault, apparently. They only create the incentives. And hold a gun to the banks head to comply with them. But they don’t actually, you know, sign the mortgage papers, so they’re in the clear. They can just point at the bankers and say, “It’s the greedy capitalists, man!”

To bail out or not to bail out? Harvard Libertarian Jeffrey A. Miron, one of 166 academic economists who signed a letter to congressional leaders last week opposing the government bailout plan, just says no:

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

… Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This "moral hazard" generates enormous distortions in an economy's allocation of its financial resources.

… Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street's hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

Even as "Congressional leaders, with advice from their parties' presidential nominees, scrambled" today to salvage the bailout bill, bloggers are having serious second thoughts. The Anchoress, in one of her classic comprehensive, link-rich tour de force superposts that covers all the bases, may be onto something:

The market is calming down all by itself, without congress passing a dubious bill. What will it mean for congress if — before they can pass the thing — we see the beginnings of a turnaround? What will it mean for the candidates?

To paraphrase Mark Steyn: when this many people I don’t trust are telling me something must be done for my own good … I don’t want it. I want to be far away from it.

Hillary's execrable "We're going to take things away from you on behalf of the common good" comes to mind.

Update: Fausta links.

Comments

[goomp]

You couldn't have analysed and explained more clearly the mess our elected representatives have gotten us into. How many of us have the courage to know and admit the truth and then accept our share of the responsibilty.

[Gayle Miller]

Common sense and the devastatingly handsome Babe. What a high point for my Wednesday!

My late cat Rocky used to do the "top of the cupboards" thing - but he usually did it as the result of an earthquake. His brother Booboo although large of size was slow of movement and usually ended up frozen in place in the middle of a room. Rocky, on the other hand, always headed for the high ground. And wouldn't come down, sometimes for hours. Where he was, that was where he stayed and made his "sit"! Heavens I still miss that lad! He was 15 and diabetic when he died and I love him now as I did when I could hold him cuddled in my arms. I absolutely adore my Sam, but Rocky was a special, special boy.

[Elisson]

"If you can keep your head when all about you are losing theirs...then you probably don't understand the seriousness of the situation."

Take a strong dose of Reagan-era deregulation, add a few shots of Dem-style "community activism" à la ACORN, whisk in some good old-fashioned human greed and stupidity, and you have the seeds of today's financial Cluster-(notaniceword).

Both sides of the aisle share some responsibility for allowing this mess to fester and grow, and they will both have to suck it up in order to fix it.

Meanwhile...kitties!

[Gayle Miller]

Somehow kitties make the world a better place, don't you agree? Especially yours, Elisson, and Sissy/Tuck's brood and my own Sam thee Wonder Cat. This morning he started his usual campaign for me to open the French doors in the master bathroom so he could trundle out onto the deck (he has a kitty door - he just prefers to be served). So finally, despite how chilly it was, I obliged his portly self! Two minutes later he came barreling back into the house, threw me a dirty look as if it was MY FAULT it was chilly outside and dove onto my bed that I was TRYING to straighten and under the covers! So once again, thanks to my big lad, I started the day with a snort and a giggle.