George Rebane

Today we quickly look at two peas in a pod – the ‘we’re from the government, and we’re here to help’ pod.

The federal government’s bailout program has failed miserably from the gitgo – it was supposed to be a fast-acting fix that would keep the trouble from spreading across the globe.  Well, it’s been neither fast-acting and the financial crisis is now worldwide.  Donald Luskin, chief investment officer at Trend Macrolytics LLC, reports in the 17nov08 National Review that

The fact that the government agencies that should have been rescuers became destroyers instead – and the utter uncertainty about how and when these agencies would exercise their power – caused investors’ confidence to collapse.  Federal agencies unintentionally created an incentive structure that rewarded investor behavior that would exacerbate the crisis and punished behavior that would mitigate it.

It looks like Paulson and crowd may have learned a lesson from the carnage they created and will now inject the next $250B to actually help troubled banks weather about $2.5T of shakey assets, instead of using the money to continue zeroing out the investors they are trying woo, and make a fortune for short sellers.  In industry we usually call this a ‘learn while you earn’ program.

Meanwhile here in the Sierra foothills the Grass Valley City Council has learned nothing from its first try at implementing Sacramento’s Affordable Housing mandates.  The program has been an utter failure, and adds to the long and unimaginably expensive (in human and dollar costs) trail of government failures in the housing markets.  (See SESF report ‘Affordable Housing’) 

Now the council honorables are planning another tilt at the windmills, calling their last attempt a “noble” effort.  When that effort launched, most of the Nevada County’s residents immediately saw that their mandates and regulations for the developers would lead to nowhere. These well-intentioned but terminally challenged people still don’t understand the difference between affordable housing (a political definition) and low cost housing (market defined). 

If a market for low cost housing exists in Nevada County, then the developers will be the first to find out how to satisfy it for profit.  In the past, local politicians have actually had the hubris to blame the developers for not coming up with affordable housing proposals that satisfied government regulatory dictates.

Having five council members now listen to a roomful of city renters (who really want rent controls), before coming up with their next version of obstacles, is nothing but the same song, different verse.  But oh do they love to sing.

[update] And finally, if you’re a conservative or free market libertarian like me, then do your penance and read P.J. O’Rourke’s mea culpa, and take it head on, standing up – no whining!