Purge!

Our financial woes are far from over.

What's with this bailout bill in Congress right now? First, we all thought the $700 billion bill would pass, but Congressmen unexpectedly changed their minds after receiving complaints from constituents- so many complaints, in fact, that the House of Representatives’ website and email account nearly crashed. Then, after the precipitous 777 point fall on the Dow Jones trading index in the New York Stock Exchange, Congressmen, and their constituents, changed their tunes pretty quickly, claiming that "we can't just do nothing."

But- yes, we can do nothing. And we should.

The best solution to our financial crisis is not to use taxpayer dollars- a whole lot of taxpayer dollars- to buy banks' bad assets, but let those assets crash. People claim that this free market, zero-regulation economic policy is what got us into this Wall Street calamity in the first place. That's true- bankers began behaving moronically, offering loans and mortgages to consumers who they knew wouldn't be able to repay them. They just wanted to make a lot of money in the short term, without regard for the consequences.

So, I just admitted that free market capitalism is what caused this perilous predicament on Wall Street- why in my right mind would I continue to advocate it? Well, what the market needs right now is a total purge. Those bad assets I mentioned above need to be wiped out- but the current bailout bill would simply have the government buy them, thus keeping them in existence, in the naive hope they'll recover and stabilize.

In today's New York Times, columnist Thomas Friedman claimed that like it or not, a bailout was necessary. He pointed out that the global economy is greatly connected, and letting one sector of it sink- the banks and mortgage companies- would affect even those who don't own stock in or do business with those companies. A recession is sure to follow if a government bailout is not implemented. Again, that's probably true. But while a recession causes us all pain in the short run, it will better the economy in the long run. A recession is what purges the economy of its rotten assets- like a surgeon who cuts out a cancerous tumor.

Friedman also claims that people who oppose the bailout, like me, are simply doing it out of revenge; as punishment for the greedy Wall Street bankers who got us into this mess. We want them to suffer. While I certainly agree these people need to be punished (especially those CEOs walking away with million dollar bonuses), that is far from my priority in advocating a market crash. We need to just hunker down and let the market crash now in order to avoid a much more devastating crash in the future.

Frank Shostak, in an article posted on the Mises Institute Website, had the following to say:

Conventional thinking presents economic adjustment — also labeled as "economic recession" — as something terrible, even the end of the world. In fact, economic adjustment is not menacing or terrible... Yet for some strange reason, most experts these days cling to the view that the market cannot be trusted in difficult times like these.

In other words, we shouldn't try to avoid a recession- we need one to ensure the economy fixes itself, all free of charge to the taxpayer. I strongly agree with Shostak’s assessment of economic recession: it is a scary term, and an undesirable thing, but is allows the market to readjust, which in fact would be a very good thing.

What the bailout plan essentially provides is what Republican Representative Ron Paul calls a "prop-up." In an interview with CNN, he said:

So, we should get out of the way and not buy up bad debt... we're sticking [the debt] with the taxpayer. So we have to recognize that the liquidation of debt is crucial. And if we did that, we would have tough times, there's no doubt about it, for a year. But if we keep propping a system up that's not viable, we're going to have a problem for decades, just like we did in the Depression. That's what we're on the verge of doing.

In other words, if a bailout rescue bill is passed, all it will do is perpetuate a failed market system, which will come to haunt us much, much worse sometime later down the road.

I admit, it's a scary word. But we desperately need to cut our losses and just purge. Unfortunately, our Congressmen, most of whom are up for reelection this year, are afraid of the people’s wrath if they allow a recession to occur. Instead of showing true leadership in this crisis, they’re just pandering to their constituents. If the bailout bill passes, things will seem to be back to normal for awhile, but we’d only be in the calm eye of the storm- financial catastrophe is sure to strike again, with even more dire consequences.