Myths, Meltdowns, and Misery


Or how we got here and how why the politicos want to make it worse
I'm sorry, but I really can't talk in depth about the "mortgage crisis" without talking about economics. I'll try not to lecture or go the Econ 101 route.

"They" have lied to you about economics. It's really not all that complex or boring a subject, unless someone is peddling special privileges. If you can keep a household budget, live within your means, and balance your checkbook, you know more about economics than the average Congressman. Politicos bamboozle the public by claiming that myths are true, black is white, up is down, and that it takes experts to understand economic reality.

I'm not an expert. I don't claim to understand all the scamming ins and outs. But I do know something about corporate finance. You and I are going to talk about some of the myths that the government uses against you.

Myth Number One: Government Controls the Economy.
Sounds good, doesn't it? That way if something goes wrong, they can tweak this, pull that, chant over the other thing, and WHAM-BAM we're back on track. But it's not true.

Government controls the money supply. That's it.

Money itself is a fiction, a sort of fiscal shorthand. Even when the money was backed up with something, the whole idea behind money was that we wouldn't have to carry that heavy metal around. We could give someone a piece of paper that guaranteed (theoretically) that a certain amount of SOMETHING was on deposit somewhere. In one of a long series of con games, the FedGovs removed even that backing from currency, so that the money would only be backed up with the "full faith and credit of the United States."

Except now they are undermining that with the latest shell game.

Since the money is no longer backed by gold and silver, the value behind the currency comes from the economy.

Pay attention, this is a really important bit.

The value comes from the products, services, and ideas that people have and share with each other.

The value is in the voluntary exchange. That's it.

No matter what laws Congress makes, no matter what Executive Orders the President signs, no matter what rulings the Supreme Court declares, it boils down to that one simple thing. If someone wants it, it has value.

Congress didn't demand the transistor or integrated circuit. No law created blue jeans. No Federal agency created the four-color printing process. These advances happened despite the government, not because of government. Exactly like most advances.

These are the kind of things that can't be planned. Who knew that polymer wheels for skateboards would launch a multi-billion dollar X-games industry? Before VisiCalc, personal computers were basically toys with almost no application. Why would anyone want an automatic transmission, or an intermittent windshield wiper?

Myth Number Two: Government Knows Best.
Remember, these are the same people who brought you the income tax, Social Security, Medicare, and enough off-the-books accounting tricks to fill yards of shelf space.

Myth Number Three: It's a Failure of the Free Market.
Not to mention that closely related one, the Democrats had Nothing To Do With It.

Mortgages haven't been a free market since Fannie Mae was created. It got worse during the Carter Administration with the Community Reinvestment Act of 1977, and again during the Clinton Administration when the CRA was revised.

The CRA required banks to make loans to people who would not qualify. Some people can't afford houses, that doesn't mean they should take out loans or that banks should grant them.

Myth Number Four: They Are Too Big to Allow To Fail.
Now we get to how government made things worse.

Fannie Mae and Freddie Mac were granted special privileges and powers beyond the law. It's a classic example of how Congress loves to undermine the uniform rule of law. These two "government sponsored enterprises" could NEVER have existed without constant government intervention. The only reason these GSEs got big is because the law was bent.

Myth Number Five: It's Bush's Fault!
The Bush Administration did try to reform the mess several times.

A brief aside here. I think it's unlikely, but this could have started as a political move by Bush to get reform in place. If Congress hadn't acted before, it's a sure bet that without a catastrophic crisis, they wouldn't act now. Bush could have put the "worse case" reform on the table, knowing that Congress would remove some bits just to score points with their constituents. After all, that is what happened with the USAPatriot Act.

There were other calls to reform the mess from before Bush was elected.

These are some of the major myths.

So what should government do?

Nothing.

Absolutely nothing.

Let them fail. That is how the free market works.

The AIG bailout tells us that no matter what the politicos say, there is always "room" for one more bailout if it's got enough political clout.

There are good reasons to suspect that some firms may have manipulated events to profit.

And the Democrats are already goosing numbers to hand out political largesse.

Government can't be trusted to fix this. It can't even be trusted to remove the laws that made the mess possible.

Tell your Congressman and Senators that you don't want a bailout.

— NeoWayland

Posted: Sun - September 28, 2008 at 01:11 PM  Tag


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