Capital Commerce

Here is, I think, a pretty safe prediction: The Republican presidential nominee in the summer of 2012 will have come out against the Paulson-Bernanke bailout plan in the fall of 2008. Conservative rage against the $700 billion "rescue" attempt, as President Bush terms it, has been stoked white hot by Newt Gingrich, Rush Limbaugh, and the powerful pundits of the right-wing blogosphere such as Michelle Malkin and Jonah Goldberg. But the inherent skepticism was there from the very beginning. Economist Brian Wesbury sums up the fears of many economic conservatives: "When the public hears the government must save the economy from capitalism run amok it loses faith in our free market system."

It's all about "first principles" as Fred Thompson might describe it. And a belief in the wonder-working power of free markets is about as basic as it gets for conservatives. Indeed, savvy political observers might have noticed that 2008 runner-up Mike Huckabee has already come out against the bailout. He wrote the following on the Huck Pac website on Sept. 23: "Frankly, I'm disappointed and disgusted with my own Republican party as I watch them attempt to strong-arm a bailout of some of America's biggest corporations by asking the taxpayers to suck up the staggering results of the hubris, greed, and arrogance of those who sought to make a quick buck by throwing the dice."

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Every once in a while America loses something—China, Vietnam, Wall Street—and we try to figure out who lost it. Rush Limbaugh thinks he knows:

The issue is not a runaway, unregulated free market. The issue is not the failure to regulate. The issue is not stupid and crooked executives throughout the banking industry doing stupid and crooked things, although there was some of that. There's some of that in every area of life. But that's not the cause. What you need to understand, my good friends, is that this situation has occurred and is occurring as a direct result of government policies: liberal government policies that were used to force the issuance of trillions of dollars in risky loans that people could not pay back. And when they couldn't pay them back, people couldn't get the asset value that they had sold and packaged the mortgages for, and everything crashed, everything crumbled.

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What credit crisis? That's the question being asked by the antibailout crowd in the blogosphere. These folks point to an analysis written by economist Robert Higgs where he points to various measures of lending activity and finds them fairly robust. Here is the problem: Those measures are from August. How do the credit markets look right now?

First, this from economist Mike Darda at MKM Partners, who is checking his Bloomberg today rather than looking at moldy data from last month:

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I took holy heck from some quarters regarding my estimate that not bailing out Wall Street would cause $15 trillion to $30 trillion in economic damage. Now here is the World's Smartest Investor on CNBC today: "Last week, we were at the brink of something that would have made anything that's happened in financial history pale."

Indeed. Let me also quote my good friend Larry Kudlow from his must-read blog:

I can understand legitimate concerns about a big-government intervention and a giant $700 billion number. There's a shock effect here. But once in a while the financial center of capitalism goes into panic mode and something has to be done. Actually, it's a marvel that we permit government to infrequently come to the rescue of our credit system. It doesn't happen everyday. But it has been necessary going all the way back to Alexander Hamilton's original rescue of our failing debt system in the 1790s. ... It would be great to avoid either a deep credit-driven recession or a global banking meltdown—or both. Paulson has always viewed his rescue plan as an economic-growth tool. I think he's right.

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