Don't just do something, stand there

While discussing proposals for the Federal government to act immediately to resolve the current financial crisis at lunch today, a light went on in my head. We're told we must approve a rescue plan immediately, or disaster will result. Yet, in any other financial situation where I'm told the same, I've learned that's precisely when I must sit on my wallet and not act. Anytime a salesman tells you a special is "today only", experienced consumers realize it isn't really, and in all likelihood isn't something you'll be happy later to have bought.

Yes, there are real emergencies in life, and sometimes you have to act quickly. But in general, when people you have no reason to trust insist loudly that you must trust them immediately, that's a deal breaker, whether it's regarding a used car, a time-share in Florida, or the current credit crunch.

I will be very surprised if Congress is able to pass anything to resolve this matter before the November election, and no matter the risks if they don't, I'd prefer they take however much time they need to fully understand what they are voting on and improve the solution enough that it actually solves some problem rather than just setting fire to even more money and rewarding those who rightfully should instead be punished.

In my opinion, it's still way too early for any of us to be either for or against the current bailout plan. We simply don't know enough yet to make an informed decision, and I expect the same is true of our representatives. So, no need to stick our heads in the sand and avoid a probably-serious issue, but also no reason for us to be immediately writing blank checks to some of the same people who wasted previous funds.

Update 2 days later: No change in my opposition to quick intervention yet. Interestingly, opposition is extremely bi-partisan. Both fervent lefties and fervent righties agree in having NO interest in asking Main Street to bail out Wall Street. I have yet to hear ANYONE here speak in favor of the bailout.

Frankly, what can be done quickly is already being done. That's monetary policy, which isn't exactly the free market we remember and love, but mostly works most of the time. Its main virtue is speed, and its main weakness is that it can only do so much to steer the economy.

The other potential control mechanism is fiscal policy, which is what Congress is arguing about now. Fiscal policy takes time - never less than the couple of months earlier this year to get taxpayers sent a stimulus check. The problem there is that fiscal policy is determined by politicians, very few of whom have ever taken even one college class in Economics. Sadly, that includes both McCain and Obama.

I think the real game here on the part of those seeking a deal most urgently is to protect incumbents, because they are at least as unpopular as President Bush.

Several economists from U of Chicago & Northwestern weighed in to oppose the bailout this morning. As a college Econ major myself forty years ago, that impressed me, though whenever I'm tempted to take economists too seriously I remind myself that "Economists predicted three out of the last one recessions -- They don't call it the dismal science for nothing." (source unknown.)

IF there's any truth to the urgency claims, we could be in for a recession soon. But recessions come and go. To get and sustain a depression takes government interference.

Another excellent discussion is here (especially the comments.)

By the way, for anyone wondering about the title of this post, its source is unknown, but possible sources from Jesus to Ronald Reagan are discussed here.

Update2: Over the weekend, Congressional majority party leaders and the President came up with a "deal", then failed to sell it to enough members of the House of Representatives among either conservative Republicans or liberal Democrats. Personally, the deal that failed seemed better than either the original proposal or the initial suggested revision from Congress. It doesn't, however, seem worthy of support yet. (It's kind of a first when both Rush Limbaugh and International A.N.S.W.E.R. agree on opposing the same thing.)

Thus, we need new ideas for a solution. And here's an interesting one, from the F.D.I.C. chair during the last such crisis in the 1980s. (Who knew the solution might be as simple as undoing recent changes in accounting rules?)
"we must take three immediate steps to prevent a further rash of financial failures and taxpayer bailouts. First, the SEC must suspend Fair Value Accounting and require that assets be marked to their true economic value. Second, the SEC needs to immediately clamp down on abusive practices by short sellers. It has taken a first step in reinstituting the prohibition against "naked selling." Finally, the bank regulators need to acknowledge that the Basel II capital rules represent a serious policy mistake and repeal the rules before they do real damage."

Update3: I like Instapundit's take on this: "WITH SWEETENERS: The bailout bill has passed the Senate. Before it's all over, we'll probably wish that Monday's bill had passed instead -- giving Congress more time to add their gimmes probably hasn't produced a better bill."

Here's an example, found by a prof here:
"From page 300/301 of the Senate's version of the bailout bill:
SEC. 503. EXEMPTION FROM EXCISE TAX FOR CERTAIN WOODEN ARROWS
DESIGNED FOR USE BY CHILDREN.
(a) IN GENERAL.Paragraph (2) of section 4161(b) is amended by
redesignating subparagraph (B) as sub- paragraph (C) and by inserting
after subparagraph (A) the following new subparagraph:

(b) EFFECTIVE DATE.The amendments made by this section shall apply to
shafts first sold after the date of enactment of this Act."

Personally, I still have to wonder why standing by while our entire economy collapses and giving Congressional porkers who were a major cause of the problem even more pork to play with have to be our only choices. Not buying that yet myself, and thinking increasingly that we need a 1994-size clean sweep of incumbents from Congress, though I
don't expect to see that this year.

Update4: Fabius Maximus (a blog previously unknown to me), on the other hand (hat tip Instapundit), thinks we have to accept the bailout, and more - that a BIG recession is coming soon, no matter what Congress passes this week.
"All too small, too late. Incremental and reactive, responding to critical problems of last month -- irrelevant to the current situation. This is a recipe for disaster. Like in the US 1929-1933 and Japan 1989-1996 -- delaying the necessary large-scale response until the problem was no longer manageable.

This is just first aid. The recession is coming. None of these measure will speed its end or lay a foundation for an economic expansion afterwards."

Update5: Well, who cares what we think? Congress passed and President Bush signed the fully-larded Senate version of the bailout, even though the Constitution requires financial bills to start in the House.

What can we do? As suggested earlier, throw the bums out! According to this Rasmussen poll, 59% of American voters would like to do precisely that.
"If they could vote to keep or replace the entire Congress, 59% of voters would like to throw them all out and start over again. The latest Rasmussen Reports national telephone survey found that just 17% would vote to keep the current legislators in office."

Here's the thing. The only way that can happen is if those who feel that way vote down their own current member of Congress, even if they are of your preferred party. I know that's a tough one, as my member of Congress has been pretty moderate and relatively honest fiscally. But he did vote for the bailout, both times. Guess I'll have to look into how his opponent feels about fiscal integrity...

One other pearl of wisdom from the Rasmussen article is that the our founders designed our system to have high turnover in the House of Representatives, and some stability in the Senate.
"When the Constitution was written, the nation's founders expected that there would be a 50% turnover in the House of Representatives every election cycle. That was the experience they witnessed in state legislatures at the time (and most of the state legislatures offered just one-year terms). For well over 100 years after the Constitution was adopted, the turnover averaged in the 50% range as expected.

In the twentieth century, turnover began to decline. As power and prestige flowed to Washington during the New Deal era, fewer and fewer Members of Congress wanted to leave. In 1968, Congressional turnover fell to single digits for the first time ever and it has remained very low ever since."

In my opinion, many of our current financial troubles started when members of Congress stopped being Citizen legislators for a season and started being career politicians (and recently almost a hereditary aristocracy.) Incumbency is the problem, and voting out incumbents after eight years, as proposed by the 1994 reformers is the solution.