Author Topic: Tyranny Thy Name Is Emergency  (Read 100 times)

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Offline Fishrrman

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Tyranny Thy Name Is Emergency
« on: March 16, 2023, 02:03:29 pm »

Tyranny Thy Name Is Emergency
By Jeffrey A. Tucker
March 15, 2023


In the last few days, the federal government has embarked on a disastrous path as regards banking and finance. Their actions guarantee a worsening of the problem whether in the near term or down the line. These “emergency” actions have effectively created a moral hazard that could wreck the entire sector and the whole economy over time. In short, the government just guaranteed 100 percent of deposits in major banks, amounting to nearly $10 trillion in bailout guarantees.

There is no living thinker who believes that this is a good idea. Why would they do it? From every account we have so far concerning the chaotic couple of days at the White House, they did it because they didn’t know what else to do. They fear that allowing Silicon Valley Bank (SVB) to fail would lead to contagion. There is zero evidence that this is true.

SVB failed for specific reasons related to its bond portfolio. Egged on by federal regulators who pushed government bonds over the exotic financial instruments that created such trouble in 2008, this bank went all in on fixed-rate bonds. Its entire portfolio became devalued when rates rose after the Fed changed its policies. Instead of taking a haircut, like many major banks did, this bank did nothing.

The bank should have been allowed to fail, full stop. Depositors might eventually have gotten 70 cents on the dollar. So flippin’ what? That’s what happens when you keep your money in uninsured accounts. Too bad for Harry and Meghan but that’s how it is. A little tough love here would have been a beautiful thing to see. Today would be very different as risk-management teams took a closer look at their bold holdings and depositors became more scrupulous in balancing out their accounts.

Instead, the government utterly wrecked rationality in the name of emergency.
There is only one kind of banking system that does not tolerate bank failures: a non-functioning one. Quite simply, stopping bank failures is the wrong goal driven by the wrong metric, just like virus shutdowns were motivated by the wrong goal driven by the wrong metric. The trouble is that powerful people in hot boxes of panic and freak-out are the wrong people to make these decisions and yet they are the ones making them.

We are witnessing yet another failure of the administrative state, in this crisis just like the last one. These are people with too much power, no accountability, and not enough knowledge or wisdom. And yet they are the ones running the show! And it appears that every time they do something to fix a problem, they make the problem worse. The supposed cure seems always to be worse than the disease.

There is one major and dramatic reform needed in this country and all countries. The administrative apparatus of the state needs to be completely disabled and gutted. It needs to happen now. And this solution needs to be broadly applied whether it pertains to disease, energy, banking, money, and everything else. Until this happens, there is good reason to be pessimistic about the cause of freedom itself.

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An excellent essay by Mr. Tucker.