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Wednesday, September 24, 2008

Hamilton on bailouts

Larry Kudlow:
Ironically, this huge government action will be solved by free-market auctions and private sector loan workouts that will pay us back. I don't like it, but sometimes you just have to stop the financial fear. When I spoke to Alexander Hamilton last night about this, he told me it was the right thing to do. Like he did in the 1790s.
I don't like it either, but I would do it, too. As for Hamilton, it's a bit unfair that he's become a symbol of government intervention in markets. He also knew when not to intervene. When the question was what to do about the fact that many original holders of Revolution-era debt (often veterans) had sold off at steep discounts, Hamilton had the right answer: Nothing. Instead, the U.S. paid the current bondholders, showing not only that the government would honor its debts but also that it wouldn't arbitrarily reset contracts and property rights after the fact.

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