Welch crushes Bush on financial crisis hysteria and central planning

From Matt Welch in Reason...

September 24, 2008, should go down in the history books as a day of infamy. And clarity. That's when President George W. Bush looked into the eyes of anxious Americans and told them they weren't being nearly anxious enough. "America could slip into a financial panic," he warned (or was it threatened?), just hours before Washington Mutual became the biggest bank to fail in U.S. history without generating as much as a fluttered eyelid from blasé depositors (including me). "Millions of Americans could lose their jobs," he said, one week before new federal data showed unemployment unchanged at 6.1 percent, lower than it was for any month between January 1980 and June 1987. "The value of your home could plummet," he added, the same day new August housing figures showed the median U.S. house price to be $203,100. While down $73,000 in real terms from the height of the bubble two years ago, that's still a full 40 percent higher than it was at the beginning of 1997.

Aside from the innumerate hysteria, Bush sketched a worldview in which the federal government is single-handedly responsible for making sure all assets appreciate indefinitely. "The stock market would drop even more, which would reduce the value of your retirement account," he said, as if Americans were forced at gunpoint to invest for their retirement in equities instead of bonds or commodities. "Even if you have good credit history, it would be more difficult for you to get the loans you need to buy a car or send your children to college," he said, as if he didn't understand that the financial crisis was triggered in the first place by unprecedented access to easy credit. If you want to know when this country's political class, even those hailing from the allegedly pro-market Republican Party, lost faith in the single greatest economic organizing principle ever devised by mankind, look no further than the following six terse sentences from Bush's decidedly unpresidential speech: "I'm a strong believer in free enterprise. So my natural instinct is to oppose government intervention. I believe companies that make bad decisions should be allowed to go out of business. Under normal circumstances, I would have followed this course. But these are not normal circumstances. The market is not functioning properly." Italics mine, to highlight the favored lament of reluctant central planners everywhere.

Bush's laundry list of horror was not predictive; it was conditional. We could avoid the cruel fate of "a long and painful recession" if and only if Congress agreed right now to allocate around $700 billion more in money it doesn't have so the Federal Reserve could use powers it never previously contemplated to buy up huge swaths of "toxic" mortgage-related financial instruments no bank currently wanted to sell (except to the government, at a premium above the market price).

The details weren't important; as House Financial Services Committee Chairman Barney Frank (D-Mass.) said at the start of bailout negotiations, "We don't have a choice now of debating whether this is a good or a bad thing." The elite opinion leaders in Washington and New York were nearly unanimous in their contention that only deeply irresponsible "nihilists" (in New York Times columnist David Brooks' phrase) and the "lunatic fringe" of "wing nuts" and "zealots" (The Washington Post's Dana Milbank) failed to recognize the urgent need for massive yet vague reregulation....

What a mess!