Thursday, October 02, 2008

Factor #6: It Won't Actually Be Paulson's Money

I realized this today. In a follow up to my post on "Why Paulson's Money is No Good" describing why government money can't replace private capital, I forgot one key item, and it's a really good one.

Broad open-ended "emergency" legislation such as the $700b bailout is implemented and interpreted by men. A key feature of the rule of law, and the principle behind the idea the idea of a "government of laws, not men" is that the caliber of people to objectively interpret and benevolently administer law varies. And one feature of a pragmatic approach to public service is that credible men make us think that a government of men is alright. Greenspan, in many times running the FED as if he were a private banker, lulled us into thinking that the FED as legal entity isn't so bad.

Enter Hank Paulson. He's credible as an ex-Wall Street CEO, right? I have many conservative friends who, on that basis alone, are willing to at least entertain the idea that the bail-out money can't be spent that poorly. But civil servants change. New ones come. Sometimes the one we entrust a particular policy to is not the one who actually carries it out, and as a result, they carry it out poorly.

Hank Paulson isn't going to be the one administering this bail-out. In all likelihood, it will be the person selected as Treasury Secretary under President Obama [sic]. Do you know who that is? I certainly don't. Are you willing to trust that person to make good judgements about how to effectively spend this money? I shudder at the thought.


C. August said...

That's a great point. Assuming that it's a foregone conclusion that some awful bailout will happen, it undoubtedly will be someone else administering it.

This brings up the question: who will President.. choke, cough, Obama pick?

Kendall J said...

No idea. Hate to even speculate. Someone who looks credible but will speak more to his philosophy, which means he'll take advantage of every "option" built into the bail-out to advance social causes, and not get serious about bank recapitalization.

Steven Singer said...

As usual, this is another great point Kendall. My question is whether Paulson or Bernanke would even be in these positions if the powers that be couldn't trust them to do "the right thing"? We know that Allan Greenspan was once a sound money man. By studying his early writings on the economy we expected that his approach would have been anything but setting an artificially low price for credit. Yet we are paying the price for his years of price fixing. The next question to ask is whether the system corrupts the individual or if the system only selects those individual upon whom it can trust manipulate credit and impose government control over the free market? Furthermore, if the free market is dead, as it appears, does it even matter who runs the fed or the treasury? As you mentioned, it is tough to speculate about future events in this uncertain climate, but I'm confident enough to admit that I'm not optimistic based on historical precedent.