D o w n s i z e r - D i s p a t c h


Quote of the Day:

"It's a rather brief bill, with lots of money."

-- Senator Chris Dodd

Subject: Can we downsize the Big Bailout?

Today's message is a complex one. It's pretty clear to us that few
politicians understand the financial crisis before us -- particularly
their role in creating it. But I have confidence in the ability of DC
Downsizers to understand what we write here.

So what about Treasury Secretary Paulson's Big Bailout Plan . . .

Here's some "good" news: The legislation authorizing the Big Bailout
of U.S. financial institutions in only 3 pages long. This means that
every member of Congress is likely to read it, even though the "Read
the Bills Act" isn't yet the law of the land.

Here's some really bad news: The bailout legislation is only 3 pages
long, meaning that all the details are going to be left to the
unelected bureaucrats in the Treasury Department. This is the kind of
thing our "Write the Laws Act" was designed to avoid.

Here's some more bad news: The 3-page bill is likely to grow longer
as members of Congress rush to stuff it with special projects.

Here's even more bad news: The bill will raise the federal debt limit
from $10.6 trillion to $11.3 trillion, and authorize the Treasury
Secretary to buy distressed assets to the tune of $700 billion. This
will be the largest expansion of government, and increase in the
national debt, in the shortest amount of time, in the history of the

Here's some "good" news: The authorization for the Treasury Secretary
to buy distressed assets will only last two years, but . . .

That's also bad news, because politicians and lobbyists will then
have two years to wrangle sweetheart deals for themselves.

Here's more "good" news. Many "experts" believe the federal
government will be able to turn a profit on this deal, much as
happened with the Savings & Loan liquidations in the 80s and 90s. But
that's also bad news, because . . .

If this can be done at a profit then why does it need to be done by
the government at all? Why couldn't the bad assets be liquidated
through the normal bankruptcy process?

One answer, of course, is that other companies could fail too as the
firms currently in trouble start to no-pay or slow-pay their bills
under the bankruptcy process. But wouldn't such failures be good for
the economy going forward, as firms change their behavior to reduce
risk, thereby making a future repeat of this episode less likely?

Those who favor the bailout argue that they're trying to avoid panic,
which could destroy companies that are perfectly sound. Unfortunately,
the last time the federal government intervened in such a major way to
prevent panic the pain lasted for 12 long years. It was called the
Great Depression. Prior to that . . .

Financial contractions had been short and sharp. Prices, wages, and
employment fell quickly to clear the market and then things started
moving forward again. The federal interventions of the 1930s
prevented the market from clearing and thereby preserved the misery
for more than a decade. On the other hand . . .

Those who favor intervention can point to the S&L liquidation of the
80s and 90s, which did not result in a prolonged contraction. This is
probably the strongest argument for the current proposal. Therefore,
those of us who favor smaller, limited government must be prepared to
deal with it. One counter argument is that the government is using
your money to bail out the fat cats, but . . .

This argument is no longer as strong as it once was. Many more
Americans own both stock and real estate than was the case during the
Great Depression, or even during the S & L crisis. Many of us are also
dependent on private pension funds that are in turn dependent on both
the stock and real estate markets. An argument can be made that most
of us are being bailed out, not just the fat cats. But this
contention also overlooks one crucial point . . .

We're all going to pay the price for bailing ourselves out. We can
either pay the price through asset devaluation or through increased
government spending. Either way, the price is going to be paid. There
is no such thing as a free lunch. An argument can be made that the
price could be higher or lower if we simply let these companies fail,
or if the bailout proceeds, but the fact is . . .

The bailout is very, very likely to happen, and to happen quickly. We
need to find a way to react to that.

But we also need to be proactive.


The two key words here are react and proactive. First of all, how
should we react to the bailout?

We think you should oppose it, on general principles, and to make the
politicians both nervous and cautious about how they proceed,
especially in terms of manipulating the bailout to reward friends and
punish enemies. You can use our general campaign to cut federal
spending for this purpose. Use your personal comments to tell
Congress you oppose the bailout. You can send that message using our
easy-to-use Educate the Powerful System.

Second, we need to be proactive in terms of how the bailout is
handled. The Democrats in Congress say they want to adjust the
bailout bill to make sure the taxpayers benefit if the bailout turns
a profit in the same way the S&L liquidation did. This sounds good.
The problem is that for Democratic politicians having the "taxpayer
benefit" is often code for giving Congress more money to spend to
supposedly benefit the taxpayer. We need to make sure that . . .

Proceeds from the asset liquidation are used first to retire the debt
the government assumes to fund the liquidation, and that any net
profits from the sale of these assets is used either to reduce taxes,
or rebate taxes to YOU.

You can use our general cut taxes campaign for this purpose. Use your
personal comments to ask for the provisions in the above paragraph.
You can send that message using our free Educate the Powerful System.

Finally, I said we need to be proactive -- that we need to chart a
course to make sure this current crisis doesn't happen again. We need
to start campaigning to end of all of the various means by which the
federal government creates asset bubbles, including but not limited
to the Federal Reserve.

This is going to be a major undertaking. We hope we will have your
continued support to make it happen. You can contribute to our work
at our website. <https://secure.downsizedc.org/contribute>

Or you can print out the form at that same link, and mail a check to
the address listed there.

Thank you for all you do as part of the growing Downsize DC Army.

Jim Babka


DownsizeDC.org, Inc.


D o w n s i z e r - D i s p a t c h
is the official email list of DownsizeDC.org, Inc.
Downsize DC Foundation

CONTRIBUTE to the Electronic Lobbyist project at

http://www.DownsizeDC.org is sponsored by DownsizeDC.org, Inc. -- a
non-profit educational organization promoting the ideas of individual
liberty, personal responsibility, free markets, and small government.

You are encouraged to forward this message to friends and business
associates, and permission is hereby granted to reproduce any items herein
as long as attribution is provided for articles and the subscription
instructions above are included.

If you have difficulties or inquiries, simply hit reply to this message.
We're eager to help, including with requests to unsubscribe.

You are subscribed to this newsletter at this email address:

If you do not want to receive any more newsletters,

To update your preferences and to unsubscribe visit

Powered by PHPlist, www.phplist.com --