Taking a page from the excellent Robert Higgs, James K. Galbraith surveys the banking industry and wonders why the bailout is necessary. He writes (“A Bailout We Don’t Need”):
Just look at interest rates. Last week, in the panic, the federal government could fund itself, short term, for free. It could have raised money for 30 years and paid less than 4 percent. That’s far less than it cost back in 2000.
No country in this situation is broke, or insolvent, or even in much trouble. For once, Wall Street’s own markets speak the truth.
Although Galbraith draws many wrong conclusions–does he think a new Great Society should be funded on short-term debt?–his thesis supports the idea that the threat is being overstated to justify this $700 billion intervention. Surely if things were as bad as Bush, Bernanke, and Paulson have been arguing, short and long term rates would be much higher right now. So is this a grand charade to justify a targeted bailout of a politically-important industry just weeks before a presidential election? Or is the bailout simply the State’s attempt to counter the political effects of a 2001-style stock market correction that it believed it could no longer forestall?
Maybe. Or perhaps this really is the end of the post-1971 monetary system that Ron Paul called Bretton Woods II. Time will tell. One thing is certain: The federal government hasn’t gone to such lengths to scare the population into trusting it since February 2003. That time, it concerned nonexistent weapons of mass destruction, and today it is because “[o]ur entire economy is in danger.” It may be that both assertions may prove false.
