In his recent book Financing Failure: A Century of Bailouts, Vern McKinley points out that decisions made by big government have been the biggest force in the impending economic crisis.
While presenting his book and research at the CATO Institute, McKinley explained that although the major financial bailouts occurred in 2008 and 2009, there has been a great deal of difficulty in uncovering the root of the problem – especially for speculative citizens.
McKinley shared that at first, when researching for his writing, many organizations and government agencies wouldn’t respond to his inquiries. “The Freedom of Information Act is kind of a loser pay act,” he said. McKinley explained how even with the help of Judicial Watch, getting the necessary information to write his book was a challenge.
Over time, McKinley was able to investigate, and his research led him to formulate an opinion as to why bailouts became so prominent and deemed as necessary in recent years.
If you consider the narrative of the Great Depression, McKinley says, many immediately labeled it as failure of capitalism. But decades later, McKinley points out that general consensus has changed. The impression on the Depression, he says, is that it was more the fault of the federal government.
He warns that politicians and “cafeteria capitalists” are most destructive to the free market. They are most likely to side with big government bailouts. He thinks that the remark from former Senator and member of the Senate Banking committee Richard Bennett is a red flag that many politicians just don’t understand how negative bailouts can be. McKinley said that Bennett referred to the TARP vote as “Congress’s finest moment.”
To McKinley, we can no longer accept the narratives of government agencies. At the very least, we should be aware of their philosophy, he says.
McKinley warns that narratives and the adoption of specific mentalities will allow agencies to simply “fly by the seat of their pants.” He thinks a real problem is bound to occur when they simply proceed or work based on what feels right or just rely on instinct.
Then there is the philosophy of Chicken Little. McKinley says this mentality is also destructive because it imagines that harm wasn’t there but it also has the power to spread panic.
The government’s recognition of contagion was also something that he thinks contributed to the failure. He explained that a domino effect occurs when there is belief that if one bank is set to fail, the others will too.
To McKinley, there needs to be great accountability and responsibility. “The Fed always tries to take credit for the good things and blame other for the bad,” he said. Now, more than ever, there should be reliance on the private sector if we want to see confidence in the market again – perhaps for the first time in a long time.
Jocelyn Grecko is an intern at the American Journalism Center, a training program run by Accuracy in Media and Accuracy in Academia. Jocelyn has spent the past four years in the nation’s capital as a Media Studies undergraduate student at The Catholic University of America. She will graduate in May 2012.
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