McCain's Contradictory Lecture to Wall Street

Conservatives have many differences of opinion with Sen. John McCain, whether it be on the subject of amnesty for illegal aliens, on unconstitutional campaign-finance "reforms", or many other concerns large and small.

The Senator's reputation as a maverick is not all bad, though; from time to time he comes out with a plan that has the media aghast, the elites sputtering, and his advisers turning pale: in short, he has an idea that's right.

Just such an occasion took place a few days ago, when McCain revealed his solution for the crisis on Wall Street:

It is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.

Wow.  That is a statement worthy of the vaunted Straight Talk Express.  When was the last time you heard a politician, or anyone in the media, say that it was not the duty of government to solve... darn near anything?

From how you can fix your yard fence to how much toilet paper must be in your bathroom, there is no aspect of life too trivial or too private as to be safe from the all-encompassing grasp of Big Government.  Yet here stands the Republican presumptive presidential nominee, saying in effect, "Government needs to butt out where it doesn't belong."  Hear, hear!

Unfortunately, the Senator didn't stop there.  The next day, according to the New York Sun, he suggested that

...the bankers should look to the example of General Motors, which offered 0% financing on new cars after the terrorist attacks of September 11, 2001.

Now there's a good idea.  It's generally recognized that the housing bubble, and the current rampant foreclosures, were caused in large part because banks loosened their requirements for loans, and gave loans to people who could not afford to pay them back.

It's appropriate both for those people who cannot afford the homes they are in to lose them, and for banks who made unwise loans to be punished financially, as McCain himself just finished saying.  What possible benefit could there be to instead reward unwise borrowers for their irresponsibility?  If the money is free (or all but), it will hardly be used wisely; just look at the history of government "economic development" aid to Africa and to the recipients of earmarks for that matter.

It isn't entirely fair to blame McCain for this craziness.  After all, the Fed has increased its lending activity by around $200 billion, extending loans to investment banks not previously allowed to participate, while at the same time lowering interest rates to 2.25%; and, of course, President Bush and the Democrats have teamed up to throw up to $1,200 to each taxpayer across the fruited plain.  With an example like that, the more surprising thing is that he even said something sensible in the first place.

The real problem here is the Golden Rule of Politics, one which Sen. McCain should know all too well: He who has the gold, makes the rules.

Treasury Secretary Henry Paulson is fully aware of this principle.  This week we begin to see the bill that is coming due for the "free money" the Fed has been dispensing:

"The Federal Reserve should have the information about these institutions it deems necessary for making informed lending decisions," said Paulson, whose three decades on Wall Street culminated in seven years as chief executive officer of Goldman Sachs Group Inc. "Certainly, any regular access to the discount window should involve the same type of regulation and supervision."

Sure enough - if Federal monies are supplied to bail you out of trouble, you'd better expect a horde of Federal bureaucrats to infest you going forward.  This might be a worthwhile trade for the individual Wall Street firms that otherwise would have been bankrupted by their own imprudence - better to be enslaved than dead, apparently.  However, it's no good for our capitalistic system of innovation, experimentation, and as the great economist Joseph Schumpeter put it, "creative destruction."

We far prefer McCain's first reaction. It's worth repeating:

It is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.

That motto should be engraved over the New York Stock Exchange, and over the doors of the Federal Reserve Bank.  In fact, the first half of that would do well to be posted in the halls of Congress and even put on postage stamps.