The Quote of the week will appear before my column every week and every other week the polls will appear with TJ’s column.
This week’s quote is:
"Most people who read The Communist Manifesto probably have no idea that it was written by a couple of young men who had never worked a day in their lives, and who nevertheless spoke boldly in the name of 'the workers'." – Thomas Sowell
The Bailout
A few days ago, I sat through a 30 minute explanation by one of my prof's, explaining why the bailout was necessary (thankfully I was able to resist the temptation to just leave) and have decided to write about it here.
First, I know the House voted against it on Monday, but that is by no means the end of it, I wouldn’t be surprised if Bush did it with an executive order, or some other similar event happened.
The Real Cause
Many ignorant people seem to think the ‘free market,’ and Bush’s Capitalism is the cause (as if this market is free and Bush is in anyway a Capitalist) of the current crisis, this is, however, not true.
The Government, as it most always is the cause.
After 9/11 the interest rates were lowered to 1%, this caused a lot of credit to be used at lower than the market rate, the response, shortly after, was a boom; businesses and people were able to grow using other people’s money.
This made Bush look very good, but, as it always does, the low rate gave people incentives to take out loans they could not pay and gave financial institutions incentives to loan money to people who may not have been able to repay it.
To compound the problem all these loans were packaged into bundles worth billions of dollars and sold and re-sold to the point where every financial institution (except Goldman Sachs which was short the same amount they were long, so their investments canceled out) had huge exposure to the loans.
After a boom caused by low credit there is always a bust, this is what is happening now; people who were enticed by low interest rates now cannot repay their loans and are defaulting, and the institutions who are owed the money are failing.
Note: this is the Austrian theory of the Business Cycle, which I literally had no grasp of two weeks ago and understand enough to be able to see what is happen after just a few hours of podcasts, this stuff isn’t that difficult to understand.
Now, government is definitely the cause of the current crisis, yet the Secretary of the Treasury, head of the Fed, President of the US and both Presidential Candidates have endorsed more government as the solution, it seems to me like they’ve punched a wall and bruised their hand and think the solution is more wall-punching.
Evolution
Most liberals seemed to be obsessed with the Theory of Evolution, which says in short, that as things with inferior traits die off, the population as a whole is improved, or survival of the fittest.
The same liberals seem to be unable to apply this simple theory to areas other than biology.
If there are inferior businesses, running at a loss, when they die off the country, as a whole, is better off. I don’t see any politicians in Africa following around herds (may not be correct term) of wildebeests bailing out the old and week about to be fed to lions.
Consequences
The people who got crappy mortgages, they couldn’t pay, defaulted on their debt which is putting the businesses who lent them money out of business, this is established. The politicians want to use the tax payer’s money (which is/was forced away from the taxpayers) to back the financial companies so they don’t go bankrupt, sounds good, right?
What about the future?
If we start down this slippery slope what happens in ten years, when worse loans are given and riskier investments are made with the thought that the government will just bail out the perpetrators? What happens when people live the life of someone
making $250,000 per year on $25,000 in income? Who will bail them out?
If people do not learn from their mistakes, what stops them from making the same or worse mistake?
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