Thursday, October 2, 2008

The Red, White, and Blue Hippo

Over the last few days, I’ve heard a lot of disturbing things come out of the mouths of politicians mostly echoing this sentiment of Nancy Pelosi, “We need to insulate and protect the taxpayers”. I thought this save them from themselves attitude was a rather odd way of describing a $700 billion government spending spree on bad debt being that the government doesn’t actually have any money except that which it can raise from the taxpayers. Now, in case you haven’t guessed, I’m not an economist (although I did get A’s in both macro and micro and finally borrowed the text book toward the end of the second semester – a flimsy claim at knowledge, I know) but it appears the “leadership” in our country may have forgone even attending economics class.

This is what I understand so far: the crisis, or credit crunch, is due to overextension of credit for housing loans, much of which was originated (?) or purchased by the government sponsored enterprises (GSE), Fannie Mae and Freddie Mac or through other private institutions that were encouraged to extend this credit risk through various regulations and government policies. The mortgage seekers, who, not meeting the market standards of good credit risks, were granted loans through these GSE’s and other less shrewd lenders, began to default on the loans (which means – not pay them back) and the loan owners began to foreclose (which means to take back the right to redeem) on those properties. Now there are a whole bunch of people who can’t afford to pay for their houses (because they never could afford it) and a whole bunch of companies who are going belly-up because their customers defaulted on the bad loans they wrote them due to government interference in the market.

The proposed solution: more government intervention in the form of a massive influx of fiat funds (more on that below in the first referenced WSJ article) for failing GSE’s and unscrupulous companies for which the taxpayers will pay now and in the future.

And they have the audacity to call this a failure of the free-market.

Three weeks ago, it appeared that no one in the government saw this coming. We, the people, seemed outraged at the sudden request of the President to bail out these companies at the price of $700 billion. The House resisted, possibly fearing the unpopularity of the bill and their chances for reelection. With the help of one bad day – not the worst – on Wall St. to point to, the Senate bulldozed it through and the House will likely revisit it tomorrow.

I know that the above is an oversimplification of the situation – it just has to be – but I think it is essentially correct. Please feel free to straighten out any of my incorrect assumptions or facts. I want to know.

In the meantime, please read this excellent article on the roots and solution in Tuesday’s Wall Street Journal, and today’s eye-opening entry, What They Said About Fan and Fred.

This fiasco is a perfect example of the tendency of those in power to improperly expand the function of government garnering more power for themselves under the distortion of what principle of government exactly? Promoting the general Welfare? Again, you can’t mandate the stupid out of people, but you can certainly subsidize it. This is contrary to promoting the general welfare.

We get the government we deserve. What will it take for us to realize that that crushing sensation is not from our strenuous efforts to achieve our personal values within the individual rights protected by our government, but from the Red, White, and Blue Hippo sitting on our chests claiming to save us from ourselves?

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