In a dramatic turn of events, the wheels came off the government "bailout" plan today when the House of Representatives defeated the proposed legislation by a vote of 228 (nay) to 205 (yea).
While the government is temporarily unable to address the situation, the private sector has been busy recapitalizing the banks in its own free-market way: stronger banks are looking at the assets of weaker banks and other financial institutions and buying them up -- often at very attractive prices!
Could it be that the free market will be able to accomplish what the government cannot?
The Wall Street Journal ran a timely opinion piece by Gordon Crovitz this morning (before the legislation fell apart) entitled "Calling J.P. Morgan," noting that in the Panic of 1907 the capitalist titan called the nation's top bankers into his library, opened their balance sheets, and in an all-night session, "decided which financial institutions had to go and which would live."
Something similar has been taking place over the past weeks and months.
Not mentioned in the Journal's article is the fact that many politicians were so shocked that the resolution to the crisis had been accomplished by a lone capitalist outside of the halls of government that they began working to ensure that it would never happen again. Morgan's legendary meeting was the impetus for those who argued for the creation of a Federal Reserve Bank.
We have argued that the current crisis was not caused by free enterprise (as many are asserting) but rather by government (starting with Fannie Mae, Freddie Mac, Congressional legislation such as the CRA, and the Federal Reserve itself, among other players -- including many of those Congressmen pretending the most outrage now).
The biggest concern now is that as a result of the dramatic events currently unfolding, government will become even more emboldened to interfere with the free-market system, just as they did after 1907.
For later posts dealing with the same topic, see also:
- "It's a panic, not a Great Depression" 01/21/2009.
- "Big news on mark-to-market accounting" 03/13/2009.
- "What Rube Goldberg could teach us about economics" 12/08/2009.
- "The end of 2009" 12/30/2009.
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