Call Congress Today - NO to Bail-Outs
I can remember a few years ago when the Bush Administration was begging for authority to act rashly, and the case to support the action was wrapped in secrecy and fear. Congress went along, and America has suffered because of our trust.
Now, the administration wants to launch the most expensive program EVER, without time for debate and without explaining its plans.
Does it make sense to pay higher than market prices for bad assets purchased by people who ought to know better? Is anyone else struck by the handwringing and lack of empathy from Republicans when we were talking about extending unemployment benefits, in contrast to the rush to compassion for the country club Republicans we're seeing now? Why do our schools need bake sales, when $700 billion was available for a compelling need like broke bankers? Why was this money unavailable for the uninsured?
It's bad policy. But it's going to happen if you don't pick up the phone and call Congress and tell them you don't want this to happen.
Here is a site that gives you the contact information for your elected representatives. I will be calling mine today - and, to make it even easier for you, here are the numbers for:
Kit Bond: (202) 224-5721
Claire McCaskill: (816) 421-1639
Emanuel Cleaver: (816) 842-4545
Do NOT assume that any of these individuals will vote the way you expect or hope they would on this matter. In fact, each of them has shown a tendency to favor banking interests over Missourians in the past. They need to hear from you today. Be polite, but be clear. We do not want to shower $700,000,000,000 of our tax dollars on an undisciplined financial services industry.
Labels: economics, Emanuel Cleaver, kit bond, mccaskill
posted by Dan at 9/22/2008 07:00:00 AM
8 Comments:
It will happen anyway. It would have happened even if Obama was the President:Obama on Friday had embraced the concept of the bailout, and his statement does not change that. .(statement that he wants some condition attached to the bailout) It would have happened if McCain was the President.But do call. The operators are standing by.
Here Dan, maybe this will help you understand the genesis of bad decisions.
Fannie, Freddie, Fascist
by Llewellyn H. Rockwell, Jr.
Ludwig von Mises had a theory about interventionism. It doesn't accomplish its stated ends. Instead it distorts the market. That distortion cries out for a fix. The fix can consist in pulling back and freeing the market or taking further steps toward intervention. The State nearly always chooses the latter course, unless forced to do otherwise. The result is more distortion, leading eventually, by small steps, toward ever more nationalization and its attendant stagnation and bankruptcy.
When you think about the current Fannie Mae-Freddie Mac crisis, you must remember Mises's theory of intervention. Reporters will not, but you must, provided you want to understand what is going on. President Bush is considering a fateful step in a 60-year-old problem: the nationalization of these mortgage companies. He wants to guarantee the $5 trillion (that's trillion with a "t") in debt owned by these companies. Another option would be to put these monstrosities under "conservatorship," which means that you and I will pay for their losses directly.
Either way, it turns out that there is no magic way to put every American citizen, regardless of financial means or credit history, in a 3,000 square foot home. Someone, somewhere, sometime has to pay. No matter what rescue plan they are able to cobble together, that someone is you.
The heck of it is that any option would be devastating to the already-suffering housing market. The reason this sector was so wildly inflated is that banks knew that Fannie and Freddie were capable of buying any mortgage debt created by the banking industry. For these companies to be nationalized would effectively end their capacity to do this on a market basis. That means banks would suddenly have to act responsibly.
Now, you might say, if that's true, the real blame is with the individual bankers that had been making irresponsible loans under the condition that these government-sponsored enterprises would absorb them. But that's not right. Put yourself in the shoes of a banker over the last twenty years. You have competitors. You have a bottom line. If you don't extend these loans, you come off as a fool. Your competition eats your breakfast. To stay ahead of market trends means that you have to play the game, even though you know it is rigged.
Place the blame not only on the banks, but also on the institutions that are siphoning off their liabilities for irresponsible behavior, and that would be Freddie and Fannie. And who created these? Travel back in time to the New Deal. Here is an article about the creation of Freddie Mac. And here is another about Fannie Mae.
They were created by FDR in 1938 to fund mortgages insured by the Federal Home Administration. They were used by every president as a means to achieve this peculiar American value that every last person must own a home, no matter what. So they were given the legal permission to purchase private mortgages and make them part of their portfolios. Still later, under LBJ and Nixon, they became public companies and sold stock. People called this privatization, but that isn't quite right. They had access to a guaranteed line of credit creation with the U.S. Treasury. They had lower borrowing costs than any private-sector equivalent.
Government-sponsored enterprises are not subject to market discipline like regular private sector companies. Their securities are listed as government securities, so their risk premiums were not dictated by the free market. They could leverage themselves at 50-, 75-, 100-1, pyramiding debt on a tiny foundation of equity. The financial markets have long believed that the GSEs would be bailed out no matter what. And so this put them in a completely different position from a company like Enron, which the markets watched closely. What's causing the current panic is that the markets have wised up and started evaluating these institutions by market standards. Freddie and Fannie have collapsing market prices, and their bonds are carrying ever-higher risk premiums.
In other words, we are not talking about market failure. If you have a housetop you can shout that from, please do so, because the press and the government are going to make every effort to blame private borrowers and lenders for this calamity. But the origin of both these outfits is with federal legislation. They are not market entities. They have long been guaranteed by you and me. No, they have not been socialist entities either because they are privately owned. They occupy a third status for which there is a name: fascism. Really, that's what we are talking about: the inexorable tendency of financial fascism to mutate into full-scale financial socialism and therefore bankruptcy.
Mr. Bush might have prevented this meltdown by curbing the privileges of Freddie and Fannie long ago. But no, he had another plan, one which was assisted by the Republican think tanks in Washington (the curious can Google it up). The idea was a new slogan called the "ownership society."
Sounds nice, doesn't it? Sounds like free enterprise. But if you think about it, there is nothing particularly free market about the demand that everyone should own anything in particular. The idea of free markets is that your rights to own justly are not to be infringed by public or private criminals. The suggestion that everyone should own some particular thing, by whatever means, can only be funded through financial socialism or mass theft. The claim on the part of a government that it will create an "ownership society" can prove to be highly dangerous.
As for the future, Mises's theory that the government will always favor more government seems wholly sound. Here is John McCain: "Those institutions, Fannie and Freddie, have been responsible for millions of Americans to be able to own their own homes, and they will not fail, we will not allow them to fail…we will do what’s necessary to make sure that they continue that function." Not a single Democrat disagrees.
As with the S&L fiasco from years ago, the case of the housing bust followed by the trillions in taxpayer liabilities for the disaster will again be cited as a case of "the shock doctrine" and "disaster capitalism" in which the elites make fantastic amounts of money at the expense of the little guy. The critique will be mostly solid but for the one most important point: this kind of fiasco would not happen in a free market. It happens because government, through credit creation and guarantees, makes it possible.
Look down the road a bit here. What happens when banks won't lend for houses anymore? What will government do then? We might as well prepare for a future in which applying for a housing loan will have similar features to getting an SBA loan. This is where we are headed.
Government intervention is like a vial of mutating poison in the water supply. We can get by for a long time and no one seems really worse off. One day we wake up and everyone is desperately ill, and blaming not the poison but the water itself. So it is with the housing crisis. Lenders are being blamed for the entire fiasco, and capitalism is going to be subjected to a beating as usual, since Freddie and Fannie are traded in public markets. But the fact remains that there is only one reason that this went on as long as it did and became as bad as it is. It was that vial of government poison.
July 12, 2008
Wow, rayray. What a commentary!
I don't know what to believe except I'm mad as hell, mad at the investment banks and individual pariah lenders, mad at the government (both sides) and mad at the idiots that took out loans they should have known they could not pay back or didn't care if they did. I'm mad because I paid my mortgage and now get to pay theirs as well as pay for the the bonuses for the Wall Street scumbags. After reading RayRay, I think I'll be pissed at every president and administration back to FDR as well.
So what was the response?
raray is totally wrong.
Financial firms made choices to sell dubious products to each other and to dubious people. People chose to buy the products. No one had a gun to anybody's head telling them to make bad decisions.
The parties to these transactions have the culpability here. To asert anything else is ridiculous.
I emailed Bond and Claire... never bother with Cleaver... and expressed my extreme displeasure with the bailouts. It's very simple.. we DON"T HAVE THE MONEY. Unless of course we fire up the printing presses and borrow from the Chinese and Arabs.... sounds like a great plan to me. We have the most corrupt and inept Congress and Administration in history so don't expect any selfless acts.
The Bond number I posted resulted only in busy signals, so I emailed him. I left messages for McCaskill and Cleaver with staff members.
What about Dennis Moore and Nancy Boyda?
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