Two members of the research department of the Federal Reserve Bank of Minneapolis have looked at some of the key claims of a need for the big bail out bill. You can read their full report here. The four claims were:
1. Bank lending to nonfinancial corporations and individuals has declined sharply.
2. Interbank lending is essentially nonexistent.
3. Commercial paper issuance by nonfinancial corporations has declined sharply, and
rates have risen to unprecedented levels.
4. Banks play a large role in channeling funds from savers to borrowers.
After reviewing numerous data points, the researchers concluded:
Our analysis has raised questions about the claims made for the mechanism whereby
the financial crisis is affecting the overall economy. We emphasize that we do not dispute that
the United States is undergoing a financial crisis and that the United States economy may
be in a recession or may experience one in the near future. Our analysis is based on publicly
available data. Policymakers have access to other sources of data as well. Policymakers could
well believe that bold action is necessary based on data that are di ¤erent from that considered
here. If so, responsible policymaking requires that they share both the data and the analysis
that underlies the need for bold policy with the public.
In layman’s language: The 4 claims don’t seem to be validated by the data generally available to the public.
There was a lot of debate at least amongst conservatives, about whether the bailout was necessary. To hear that the claims that were made for the bailout weren’t so doesn’t restore any confidence that the folks in Washington have a real handle on what’s going on and how to fix it. I suppose Paulson could have had access to information that painted a more convincing picture for him but given that they still haven’t really implemented much of their $700 Billion plan, it would seem hard to argue that their plan actually averted an anticipated.
On the final vote, I came to oppose the bailout. I thought something should be done but I concluded that with all the pork and other nonsense that had gotten attached, no one was really serious about their concern and I have no stomach for more debt.
I’m now thinking that as we look back, after the dust settles, we’ll find that aside from the dramatic increase in the money supply, most of the other extraordinary efforts may well prove to have been nothing more than attempts by various Washington cartels to make it look like they were doing something or taking advantage of the situation and attempting to gain or consolidate their own power.
Maybe, just maybe, at the end of this we find that good old Capitalism is a lot smarter and more resilient than any of us would ever have believed. We may find that doing nothing is the best thing we could do.