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Last Updated: Nov 14, 2008 - 12:49:26 PM |
Who’s to blame? What happens if the bail-out of the bail-outs doesn’t work? Where will this lead us?
I know it is popular with late night talk show hosts, comedians, and other members of the mainstream media to blame greed and capitalism for the current meltdown in the American economy.
I beg to differ. I believe this can all be traced back to the desire of politically motivated non-economist leaders to prop up bad debt. From FDR through Nixon and every administration in between, America has been in the business of interfering with the business cycle. Before 1932, America had experienced the boom-and-bust cycle that typifies
economic activity based upon imperfect human judgments.
Things boom. Everyone wants a widget. In response to this demand for widgets, many people start making widgets. Consequently, all the people who involved in widget manufacture and sales prosper, from the people who dig raw widgets out of the ground to the people who manufacture artificial widgets, the transport systems that haul widgets, and all the various banks, savings and loans, and credit unions that finance widgets and hold the deposits of the widget industry. Suddenly, there are too many widgets and the price of widgets falls and crash goes the boom. This is a natural cycle. Until the government decided, “Acme Widget is too BIG to fail” and too many people would get hurt if Acme Widget failed, and so they started propping up the widget market, distorting the cycle. Keeping the price of widgets high to insulate everyone involved from reaping the rewards of over-production.
Replace houses for widgets and you’ll get the picture of what we’re currently facing. The government interfered in the housing market, pressuring lenders to make loans to people who couldn’t afford to buy. The major players Freddie, Fannie, and the big banks made politically correct loans instead of financially sound ones. Then they repackaged the bad debt into high interest rate investment vehicles that ended up costing more than the real worth of the property that secured them. This has now changed from a win-win to a lose-lose, but instead of letting it collapse and shake out the artificially high prices, the government started bailing everyone out until we are now bailing out the bailouts and we face the real possibility of watching while the federal government effectively nationalizes the economy.
Yes, it would be devastating for the economy to crash. Yes, it would cause pain and suffering. However, as with all the crashes we had prior to 1932, it would be over in six months to a year. Then as prices found their real level, the economy would begin to grow and prosper again on a sound basis, instead of dragging on like the Great Depression for almost a decade, only to be ended by a world war.
The people who caused this debacle, the legislators and regulators who encouraged the politically correct loans and the politically inspired bailouts, are the recipients of huge donations from the very people they are supposed to regulate. When they leave public service, they move easily into positions with mega-salaries and golden parachutes with the very entities they were regulating while the little stock holders and the taxpayers hold the bag. The revolving door and interlocking handshakes of political hacks and corporate raiders have brought us to the brink of disaster, and the only answer they offer is more of the same.
Who would have thought we would live to see the leaders of Wall Street praising the government takeover of the means of production as the only way to save capitalism? I often feel as if I’ve stumbled into a fun house of distorted mirrors and rotating floors.
Who’s to blame? Look at the ones who’re saying they’re saving us and you’ll see the very ones who took the contributions and made the decisions in the first place. What happens if the bail-outs don’t work? If you keep bailing without ever fixing the hole in the bottom of the boat, what do you think will eventually happen? Where will this lead us? To humanity’s next great experiment with command economies and regimented workforces? I know it has always failed before but maybe where the Germans and Italians, the Russians and the Albanians failed, we will succeed, since our leaders are so much more enlightened and so much better at making distorted mirrors and rotating floors.
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