But, firstly, should the US government be talking about committing $700bn of taxpayer funds to bail out the US banking system? The Archbishop of York, in a speech devoid of serious analysis, suggested yesterday that if this money could be found for the bankers, then money should be found to reduce poverty in Africa.
In fact, while the US government is making a commitment of $700bn, over time considerable value will be realised from the assets they buy and any losses will be much less than the headline figure.
Nevertheless, Bush’s plan is not the way to go about solving the current crisis. After all, this chapter opened when Freddie Mac and Fannie Mae – two institutions that were far too close to the government for their own good – went under. The US government will be creating another vehicle, which will be with us for the long term and under government control, full of poorly constructed financial instruments.
The President himself has said that we have to do whatever it takes to deal with the current crisis and then look at the underlying problems at a later date. As Ronald Reagan once said, the problem is that “government programmes, once launched, never disappear… a government bureau is the nearest thing to eternal life we will ever see on this earth”. Sixty-five years on, we are still suffering from President Roosevelt’s misguided response to the 1929 crash – part of which was the creation of Fannie Mae…