The Bail-Out

The Lies Just Keep on Coming
Thomas Sowell is a first-rate economist as is Walter E. Williams. Dr. Sowell wrote a very informative piece entitled “Bailout Politics” for Townhall.com. He opens with these words, “Nothing could more painfully demonstrate what is wrong with Congress than the current financial crisis” (p. 1). Why does he say that? Well, it’s precisely because the “Congressional ‘leaders’ invited to the White House to devise a bailout ‘solution’ are the very people who have for years created the risks that have now come home to roost” (Ibid.).
Who might that be, some might wonder. Let me give you a couple of names. How about Barney Frank (D-MA) and Christopher Dodd (D-CT). We won’t even mention Nancy Pelosi (D-CA), who is still working on her GED and trying to get her I.Q. into double digits. Five years ago Mr. Frank vouched for the soundness of Freddie Mac and Fannie Mae. He did so for ideological reasons. What, precisely, did Mr. Frank say at that time? He authoritatively stated the following: “I do not see [any] possibility of serious financial losses to the treasury” (Ibid.). Few in his own party are calling him on this. We’ll had no apology from Mr. Frank in the face of a proposed $700 billion-plus bailout that the American people clearly do not want. But the question is: Why would Mr. Frank make such a statement? It’s because it is part of his liberal program to supply people more “affordable housing.” Affordable for whom? For people who could not afford a loan in the first place as well as a number of illegal aliens who also received sub-prime loans.
Mr. Dodd said that rather than cutting back on loans the institutions should be pushed to do more to help subprime borrowers get better loans. Brilliant. To this point, Mr. Dodd has not apologized either. The roots of this problem actually go back to 1980 to then President Jimmy Carter. What we see him doing with Habitat for Humanity is simply the cheap version of Freddie Mac and Fannie Mae. Carter wanted precisely what Frank and Dodd wanted and that is the reason why both interest rates and inflation were in the double digits during his administration. Sound economists fondly called Carter’s debacle the “misery index.”[1] In 1980, thanks to the ineptitude of Mr. Carter, unemployment rates hovered around 7.5%. Today’s inflation rate just became 5%, having been between 1% and 3% for a decade and unemployment is 6.1% Why didn’t I hear any Democrats squealing back when Carter was the president?
Of course, we know this is all Bush’s fault, but realistically, it isn’t. He attempted to get our useless Democrat-majority Congress to do something about Fannie Mae and Freddie Mac and didn’t get to first base. Now the ideologues on the left have the audacity to blame Republicans. Allan Greenspan made similar points when testifying before Congress in February 2004. Sowell concludes correctly that “Fannie Mae and Freddie Mac do not deserve to be bailed out, but neither do workers, families and businesses deserve to be put through the economic wringer.” (p. 2). Moreover “Neither do the voters deserve to be deceived on the eve of an election by the notion that this is a failure of free markets that should be replaced by political micro-managing.” (Ibid.)
From his vantage point, Sowell asserts that “If Fannie Mae and Freddie Mac were free market institutions they could not have gotten away with their risky financial practices because no one would have bought their securities without the implicit assumption that the politicians would bail them out.” (Ibid.) What should be done with these companies then? It appears that both the American public and Dr. Sowell want us to let them die. “Phasing out Fannie Mae and Freddie Mac would make much more sense that letting politicians play politics with them again, with the risk and expense being again loaded onto the taxpayers.” (Ibid.)

The Proposed Bailout and Communism
Martin Masse wrote an article today (Marx’s Proposal Number Five seems to be the leading motivation for those backing the Wall Street bailout). For those who have never read Karl Marx’ Communist Manifesto (1848), it outlined ten measures that were to be implemented after the proletariat took power. Proposal Number Five delineated the aim of centralizing all instruments of production in the hands of the state and the fifth proposal specifically was to bring about the “centralization of credit in the banks of the state, by means of a national bank with state capital and an exclusive monopoly.” Sound familiar? What happens when the government favors a massive “injection of liquidities”? This ought to be a signal of a government takeover of giant financial institutions. For those with a memory, similar voices for government intervention were heard following the 2001 bursting of the dot.com bubble. But where are all the free market proponents now? Marx might wonder too.
There is something terribly wrong with this picture. “The taxes that will need to be levied to finance this package may keep some firms alive, but they will siphon off capital, kill jobs, and make other businesses less productive. The “bailout” is little more than an invisible tax that redistributes—key word to remember—resources to debtors and those who made very unwise investments. For this reason, Masse asks, “So why throw this sound free-market analysis overboard as soon as there is some downturn in the markets?” (p. 1.) The conventional wisdom out there today is the fear factor of an impending second Great Depression. As is increasingly the case, conventional wisdom isn’t very, well, wise.
Those who have spent some time studying economics know of the Austrian School and its main proponents of Friedrich Hayek and Ludwig von Mises. Back in the day, Austrian School economists warned against the dire consequences of having a central banking system based on “fiat” money, that is, “money that is not grounded on any commodity like gold and can be easily manipulated. Central banks tend to create money out of thin air. “When money creation is sustained, a financial bubble begins to feed on itself, higher prices allowing the owners of inflated titles to spend and borrow more, leading to more credit creation and to even higher prices” (p. 2.) The net result is that prices get distorted and either malinvestments or investments that should not have been made under normal market conditions accumulate. “With ‘liquidities’ in overabundance, more and more risky decisions are made to increase yields and leveraging reaches dangerous levels” (Ibid.).
The psychological problem in such a situation is that consumers are on a “high” and everyone believes that the boom will go on and on and on. A few raise their voices to warn about the obvious, but people are overly confident so the warnings fall on deaf ears, by and large. Eventually, the pyramidal scheme comes crashing to the floor. Then credit shrinks and those in risky or high-risk businesses want out, to call back loans and to put their money in safe places, which they should have been doing all along. Bad investments have to be liquidated and in times like ours, that means really taking it on the chin financially and prices have to come back to realistic levels.
So what is the problem with the government solving this for us? There are a number of issues that need to be addressed here. First, as I’ve already mentioned, why in the world would we expect those who completely mismanaged the problem in the first place to fix it now? Is Barney Frank or Chris Dodd supposed to advise us when they were two of the biggest culprits? Second, central banks and governments cannot transform unprofitable investments into profitable ones (Ibid.). There is no abracadabra here. Third, calls for throwing more money at the problem are misguided (Ibid.). “Injections of liquidities started more than a year ago and have had no effect in preventing the situation from getting worse. Such measures only delay the market correction and turn what should be a quick recession into a prolonged one” (pp. 2-3).
While many on the left yakked about recession as if it were a dirty word, those who know anything at all about the way the free market works were cognizant of the fact that a recession is a necessary correction in times of economic prosperity. One of the key reasons I’m opposed to the bailout is that it will not aid the free market, but in its present form will actually contribute to its destruction and put us further down the path of Socialism.

What Does ACORN Stand to Gain from the Bailout?
Some—maybe even many—have no idea what ACORN is. The acronym ACORN stands for Association of Community Organizations for Reform Now. At the eleventh hour it was leaked that the Dems were trying to funnel part of the bailout money to this “hyper-partisan organization involved in criminal voter fraud.”[2] And this is supposed to be a “crisis” bailout? ACORN stood to profit from a whopping 20% cut of the bailout that would be allocated to what is called the Housing Trust Fund, that supports ACORN.
What few in the media and on the left will tell you is that ACORN is a “hardcore supporter for the Democratic Party, and employ bare-knuckle tactics” (p. 1). Not only is ACORN embroiled in a number of voter fraud lawsuits, but they are also one of the organizations “accused of pushing banks into making many of the unwise loans at the heart of the current crisis…” (Ibid.). Congress has already twice funneled money to ACORN and what is more than just a little ironic is that “An organization that possibly contributed to our current financial profits [sic] is now being considered to make money off of it. And by ‘money,’ I’m referring to your tax money” (Ibid.).
What is also interesting and disconcerting about ACORN is the relationship between it and Senator Obama. One of Obama’s (and Hillary’s) mentors was the communist radical Saul Alinsky, “who advocated extreme acts to achieve social goals…” (Ibid.) It is well known that after finishing Harvard, Mr. Obama went to work for ACORN in Chicago. In fact, “Mr. Obama then became a trainer for ACORN, teaching others how to employ ACORN tactics in voter registration guides” (Ibid.). Why is Mr. Obama now wanting to pump more taxpayer money into Fannie and Freddie? They are government creations that pay their executives millions of dollars, but are shielded with our tax dollars “from suffering the downside risk of the market.” (p. 2.) Now both McCain and Obama agree that we’ve got to bail them out. McCain remains an enigma on this and it will be interesting to see how Sarah Palin responds to the bailout in the Thursday vice-presidential debate. Obama has an added dimension to his relationship with ACORN that McCain doesn’t have. “Public records show that the top two recipients of Fannie/Freddie campaign contributions are Sens. Chris Dodd and Barack Obama.” (Ibid.) It’s probably just a coincidence that each man received over $100,000 from ACORN. Dodd, you’ll remember chairs the Senate Banking Committee. Obama, the Messiah, is simply going to perform a miracle and change the bailout into a terrific profit—for his cronies, but not for the taxpayer.
The Pelosis, Franks, and Dodds bear a great deal of the blame in this debacle, but you’ll never hear one of them accept any responsibility. Instead, they’re trying even now to find a scapegoat among the Republicans. But in reality, it’s the Dems that have resisted repeated attempts to reform “Fannie and Freddie, and pushed those organizations to become ever more reckless in their policies.” (Ibid.) What should happen now is that the American voter should punish the Democrats for their unwillingness to abandon their ideology of “affordable housing.” The Dems want ACORN to get as much funding as possible for obvious reasons: more voters on Election Day. And remember: ACORN is notorious for voter fraud and voter fraud is in one sense the “worst crime against democracy.” (Ibid.)
Mr. Blackwell closes with these well-chosen words: “ACORN is a discredited organization, and far too many of its leaders and workers have been prosecuted for felonies against democracy. The idea that a single dime of taxpayer money would ever go to such a group is an outrage. And Mr. Obama needs to explain his involvement with them.” (Ibid.) Indeed, just as he needs to explain his relationship with Jeremiah Wright, Father Pfleger, Bill Ayers, and a host of other shady characters. With these liaisons, Mr. Obama shows less character than Bill Clinton, if that’s possible.

Concluding Remarks
Mark Hemingway wrote an interesting article for National Review Online about the so-called “crisis.” He pointed out that we, the people, have been part of the problem because of our lack of involvement in political things that matter most. Our tendency is to amuse ourselves to death. The word “muse” means “to ponder,” “to reflect,” and “to say meditatively.” The prefix “a” means “without.” In other words, when we’re amusing ourselves we dial the brain activity way, way down. You see, we haven’t required things of our government and elected officials. We don’t call, write, or fax them. There are times such as President Bush’s abortive immigration reform bill that finally lit a fire under people and they responded very well to that ridiculous bill and it was defeated—roundly and soundly as it should have been.
How do we change things? Hemingway says, “The public needs to see every relevant scrap of paper: every balance sheet, expense report, and executive pay stub—and most importantly, every lobbying contract, memo related to meetings with lawmakers and anything else related to their dealings with Congress.” We have been virtually totally indifferent to the antics of Freddie and Fannie for a long time; too long, in fact. “For years, Fannie Mae and Freddie Mac wreaked havoc in the mortgage markets. Between the two, they own around 50 percent of the $12 trillion mortgage-securities market—effectively a monopoly.” Did you know that? $12 trillion dollars is more than I make a year! We’re not talking billions, but rather trillions! So as Freddie and Fannie sowed their seeds of economic ruin—and make no mistake: they did!—with shady accounting practices and foolish loans that no privately run business would or could have gotten away with, they simultaneously fattened their “coffers and heaped money on their executives.”
So we all ask now: Why didn’t Congress do anything sooner? The short answer is because Freddie and Fannie were sending campaign cash to our elected leaders that effectively bribed them “to keep their mouths shut and vociferously defend their accounting practices.” Do you remember the “Keating Five”? During the savings and loan “crisis,” banker Charles Keating tried to discourage senators from launching an investigation of why the S&Ls went belly up. I wonder why. Hemingway also offers this valuable insight: “After Enron failed due to the company’s dubious accounting practices, Congress passed Sarbanes-Oxley—ostensibly to ensure that companies properly disclose financial information to investors. And yet, Fannie and Freddie were exempted from key components of the act.” (Emphasis added.) Clearly, as we move forward, you must let your elected officials know that “the collusion with members of Congress to cover up Fannie and Freddie’s failure is unprecedented, and normal oversight measures can’t be trusted.” There should be an investigation and everyone in Congress—everyone—who knew what was going on (read: was getting paid to look the other way) should be investigated and, if guilty, fired or impeached. Their names should be written large across the front page of every newspaper.
What right do our elected representatives have to demand that taxpayers cough up close to a trillion to prop up irresponsible “actors in the financial sector” and in Congress. Having the likes of Barney Frank, Chris Dodd, and Barack Obama attempt to solve this is asking them to be judge in their own case. The only perceived benefit is that Obama would probably just vote “present.”
When will we the people have had enough? Congress wants a $700-plus billion bailout, while Louisiana Senator, Mary Landrieu (D) is asking Congress for another $250 billion to help rebuild New Orleans. When does the taxing stop? Currently, we pay federal, state, and local taxes on our land, our wages, our cars, tractors, and mules, our cows, our goats, our pants, our coats, our ties, our shirts, our shoes, our dresses, our tobacco, our booze, our gas, our coffins, and our graves. American citizens pay cigarette tax, corporate income tax, dog license tax, federal income tax, federal unemployment tax, fishing license tax, food license tax, gasoline tax, hunting license tax, inheritance tax, IRS interest charges that amount to tax on top of tax, IRS penalties (another tax on top of tax), luxury tax, marriage license tax, medicare tax, property tax, real estate tax, social security tax, sales tax, school tax, state income tax, state unemployment tax, telephone federal excise tax, telephone federal, state, and local surcharge tax, telephone minimum usage surcharge tax, telephone state and local tax, utilities tax, vehicle license registration tax, and a litany—a long litany—of other taxes. And here’s the kicker: not one of these taxes existed 100 years ago and our nation was the most prosperous nation in the world. We had no national debt, had the largest middle class in the world, and mom stayed home to raise the kids. Oh, yes, did I mention that we didn’t have to dial or press 1 for English?

[1] Walter Williams, “Politicians, media out to scare us,” The Orange County Register (9.28.2008).

[2] Ken Blackwell, “An ACORN Falls from the Tree,” www.Townhall.com (9.30.2008).