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Reason Alert: Wall Street’s Woes Aren’t a National Crisis

  • The Roots of the Financial ‘Crisis’
  • Chicago to Privatize Midway Airport
  • The Priorities That Should Come Before Global Warming
  • New at Reason.org and Reason.com

The Roots of the Financial ‘Crisis’
As seen on the Drudge Report earlier today, Reason Foundation’s Mike Flynn writes, “This is a Wall Street crisis, not a national economic crisis. The overall economy, while a bit weak, is still growing. Some politicians are comparing the current environment to the Great Depression. But in 1932, when the federal government last moved to bail out the banking sector, economic output had fallen 45 percent and unemployment was a staggering 24 percent. Today, economic output is actually up and unemployment is a historically modest 6.1 percent. The overall economy doesn’t even face a liquidity crisis in the current turmoil. Consumer, commercial/industrial, and real estate loans are all up over last year. Main Street is doing fine. The liquidity crisis is confined to Wall Street, between and among investment banks, insurance and securities firms, and hedge funds. There is the possibility that the contagion could spread, but in a global capital market, this is hardly certain. It is the intersection of several underlying trends that have brought us to this point, not a breakdown in any specific part of the financial sector. The fundamental flaw with the bailout approach is that it ignores these trends and simply seeks to shore up the finances of certain Wall Street institutions…no market is truly illiquid. It just isn’t liquid at the price you want to sell. This summer, Merrill Lynch unloaded a bunch of bad debt at 22 cents on the dollar. There are likely plenty of buyers for the banks’ bad debt, just not at the price the banks would prefer. Enter the government, which clearly intends to purchase [mortgage-backed securities] MBSes at some premium above the market price. That was the nature of the bailout that failed on Monday. Congressional leaders have vowed to bring a new proposal for a vote, proving yet again that Washington is fertile ground for really bad ideas. But with the market rebounding-as of this writing the Dow was up almost 300 points-and public opposition hardening, signs are emerging that banks are starting to clean house. The crisis may have already peaked. Of course, Congress’ ability to further screw this up can’t be overstated.”
» Jacob Sullum: Does It Take a Panic to Stop a Panic?
» Steve Chapman: Why the Bailout Is a Terrible Idea
» Brian Doherty: Five Questions About the Short-Selling Ban

Chicago to Privatize Midway Airport
Reason Foundation’s Robert Poole, who has advised the last four presidential administrations, reacts to the news that Chicago has agreed to lease Midway Airport to a private operator for $2.5 billion: “Four years ago Chicago Mayor Richard Daley set off something of an earthquake by leasing the Chicago Skyway for $1.8 billion. The question for today is: Will his lease of Midway Airport for $2.5 billion set off a similar earthquake? In the toll roads area, the Skyway deal was a wake-up call to the global capital markets that there was frozen capital value trapped in often-poorly-run government toll roads. Over the previous decades, Canada, France, Italy, Portugal, and Spain had all privatized state-owned toll roads, but somehow the idea had been considered unthinkable in the land of tax-exempt municipal revenue bonds. The Skyway deal showed that with a sufficiently long lease term (99 years), private capital could compete with tax-advantaged public-sector debt-and the floodgates opened. A year later Indiana leased its much larger toll road for $3.8 billion, and the private sector rescued failing start-up toll roads in Virginia and Colorado. And this year we’ve seen a record $12.8 billion bid for the Pennsylvania Turnpike (though politics may still torpedo that deal). Are we now going to see a wave of U.S. airport privatization deals? Maybe. On the upside is known interest from at least two other local governments – Austin and Milwaukee. And there are three available slots left in the federal Airport Privatization Pilot Program for medium-sized airports like those two. The fact that the Midway deal could still be done, given the turmoil in the financial markets right now, is another positive sign. And even though airlines are currently cutting back services to try to get back into the black, that’s a short-term phenomenon that should have little impact on the long-term value of airports as infrastructure investments. The main downside is that once the three remaining slots in the Pilot Program are filled, nobody else can privatize their airport-unless and until Congress expands that legislation. And that has to be seen as a huge question mark. As of today, Congress is a full year late in reauthorizing the Federal Aviation Administration, and with it the long-running airport grants program. If they give aviation such a low priority, it’s hard to imagine them rushing to expand an obscure piece of aviation legislation, especially to expand the scope of the dreaded P-word. Still, city and county budgets are likely to be in worse shape next year than they are now. If America’s mayors and legislators call for expanded airport privatization, even a Democratic Congress might actually take them seriously.”
» Airports Research and Commentary

The Priorities That Should Come Before Global Warming
Reason magazine’s Science Correspondent Ronald Bailey interviews Danish statistician and best-selling author Bjorn Lomborg on our priorities and what should be done about global warming. Lomborg says, “…we need to start prioritizing; we need to be smart about the kinds of problems that we worry about. People in the U.S. will worry about pesticides, which kill probably about 20 people a year, but care very little about particulate air pollution, which kills 110,000 people in the U.S. every year. We could probably do something dramatic about particulates at a much lower cost than the pesticides. It’s much more about getting those orders of magnitude right, and that’s, of course, what the Copenhagen Consensus is about…we have very cheap aspirins, statins, for dealing with heart disease that work very well. Spending $200 million a year could probably save about 300,000 people dying each year in the developing world, causing a benefit of $25 for every dollar spent. Now, that’s not a sexy proposal. It’s not one that you usually hear, but isn’t it something we ought to hear?”
» Meet Bjorn Lomborg at Reason Goes Hollywood in November

New From Reason.org and Reason.com

Temporary Fix for Transportation Trust Fund
States should look to private sector for help building, maintaining infrastructure
Shirley Ybarra

Zeroing Out Nuclear Bombs
Both Obama and McCain say that’s their goal
Ronald Bailey

The House of Death
An interview with DEA whistleblower Sandy Gonzalez
Radley Balko

When Free Love Died
Why the sexual revolution plays only in reruns
Tim Cavanaugh

Why Opting Out Is No “Third Way”
The perplexing banality of “libertarian paternalism”
Will Wilkinson

An Expert-Induced Bubble
The nasty role of ratings agencies in the busted housing market
David M. Levy and Sandra J. Peart

Why Paulson is Wrong
Saving capitalism from the capitalists
Luigi Zingales

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