dToo Big To Fail - Road to the Middle Class - by Christopher Chantrill
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Obama Fails the Test "We're Owed and They Aren't"

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Too Big To Fail

by Christopher Chantrill
March 20, 2008 at 6:38 pm

WHAT DO we do about institutions, particularly financial institutions, that are “too big to fail?”

In the current credit crunch that becomes a big deal. The government runs around worrying about the bankers. It seems like we let the little guy go to the wall, foreclose on his mortgage, and send him out into the street.

Not one penny, you might say, for the struggling homeowner, but billions for the bankers.

Last weekend, the Federal Reserve bailed out failing investment bank Bear Stearns.

Actually, the Fed didn’t quite “bail out” Bear Stearns. They gave it to JP Morgan Chase for a couple of hundred million. That means that Bear’s stockholders got two cents on the dollar. I don’t think that’s exactly a bailout. It looks to me more like a haircut.

You can tell that the Fed probably did the right thing by reading what Larry Kudlow, an old Bear hand, had to say about it. He wonders if Bear Stearns really had to go down in flames. After noting that the Fed could have let Bear Stearns in at the discount window and telling us that he used to work at Bear, he gives us this:

All of this kind of makes me wonder whether Bear Stearns wasn’t some kind of sacrificial lamb. Did government policy makers hope to convince the public that a big Wall Street firm could indeed fail? Or wouldn’t be bailed out? Listen, they were buried, not bailed out.

The fact is, Bear shareholders got creamed with the $2 per share purchase price. The shareholders include all the men and women who’ve worked there for years, and who own roughly one-third of the firm’s equity.

After the Bear Stearns creaming, the word was that Lehman Brothers might be next. But the Lehman bears got a talking to from the Fed: Keep lending to Lehman, the Fed said. You could translate the message, if you like: If you chaps keep on down this road, the Fed seemed to say, we could end up giving all you chaps a haircut too.

So maybe the Fed isn’t crazy when it makes a sacrificial lamb out of Bear Stearns. Maybe it is sending a message to the sharks: we are loading up with harpoons here at the Fed.

Maybe the Fed is crazy like a fox.

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Christopher Chantrill blogs at www.roadtothemiddleclass.com.  His Road to the Middle Class is forthcoming.


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Faith & Purpose

“When we began first to preach these things, the people appeared as awakened from the sleep of ages—they seemed to see for the first time that they were responsible beings, and that a refusal to use the means appointed was a damning sin.”
Finke, Stark, The Churching of America, 1776-1990


Mutual Aid

In 1911... at least nine million of the 12 million covered by national insurance were already members of voluntary sick pay schemes. A similar proportion were also eligible for medical care.
Green, Reinventing Civil Society


Education

“We have met with families in which for weeks together, not an article of sustenance but potatoes had been used; yet for every child the hard-earned sum was provided to send them to school.”
E. G. West, Education and the State


Living Under Law

Law being too tenuous to rely upon in [Ulster and the Scottish borderlands], people developed patterns of settling differences by personal fighting and family feuds.
Thomas Sowell, Conquests and Cultures


German Philosophy

The primary thing to keep in mind about German and Russian thought since 1800 is that it takes for granted that the Cartesian, Lockean or Humean scientific and philosophical conception of man and nature... has been shown by indisputable evidence to be inadequate. 
F.S.C. Northrop, The Meeting of East and West


Knowledge

Inquiry does not start unless there is a problem... It is the problem and its characteristics revealed by analysis which guides one first to the relevant facts and then, once the relevant facts are known, to the relevant hypotheses.
F.S.C. Northrop, The Logic of the Sciences and the Humanities


Chappies

“But I saw a man yesterday who knows a fellow who had it from a chappie that said that Urquhart had been dipping himself a bit recklessly off the deep end.”  —Freddy Arbuthnot
Dorothy L. Sayers, Strong Poison


Democratic Capitalism

I mean three systems in one: a predominantly market economy; a polity respectful of the rights of the individual to life, liberty, and the pursuit of happiness; and a system of cultural institutions moved by ideals of liberty and justice for all. In short, three dynamic and converging systems functioning as one: a democratic polity, an economy based on markets and incentives, and a moral-cultural system which is plural and, in the largest sense, liberal.
Michael Novak, The Spirit of Democratic Capitalism


Action

The incentive that impels a man to act is always some uneasiness... But to make a man act [he must have] the expectation that purposeful behavior has the power to remove or at least to alleviate the felt uneasiness.
Ludwig von Mises, Human Action


Churches

[In the] higher Christian churches... they saunter through the liturgy like Mohawks along a string of scaffolding who have long since forgotten their danger. If God were to blast such a service to bits, the congregation would be, I believe, genuinely shocked. But in the low churches you expect it every minute.
Annie Dillard, Holy the Firm


Conversion

“When we received Christ,” Phil added, “all of a sudden we now had a rule book to go by, and when we had problems the preacher was right there to give us the answers.”
James M. Ault, Jr., Spirit and Flesh


Living Law

The recognition and integration of extralegal property rights [in the Homestead Act] was a key element in the United States becoming the most important market economy and producer of capital in the world.
Hernando de Soto, The Mystery of Capital


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©2007 Christopher Chantrill