Bush: Bailout Is Not a Quick Fix for the Economy

Ron Paul on Economic Bailouts

Ron Paul’s statement regarding the current economic crisis:

“Many Americans today are asking themselves how the economy got to be in such a bad spot.

For years they thought the economy was booming, growth was up, job numbers and productivity were increasing. Yet now we find ourselves in what is shaping up to be one of the most severe economic downturns since the Great Depression.

Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.

Ever since the 1930s, the federal government has involved itself deeply in housing policy and developed numerous programs to encourage homebuilding and homeownership.

Government-sponsored enterprises Fannie Mae and Freddie Mac were able to obtain a monopoly position in the mortgage market, especially the mortgage-backed securities market, because of the advantages bestowed upon them by the federal government.

Laws passed by Congress such as the Community Reinvestment Act required banks to make loans to previously underserved segments of their communities, thus forcing banks to lend to people who normally would be rejected as bad credit risks.

These governmental measures, combined with the Federal Reserve’s loose monetary policy, led to an unsustainable housing boom. The key measure by which the Fed caused this boom was through the manipulation of interest rates, and the open market operations that accompany this lowering.

Because the boom comes about from an increase in the supply of money and not from demand from consumers, the result is malinvestment, a misallocation of resources into sectors in which there is insufficient demand.

In this case, this manifested itself in overbuilding in real estate. When builders realize they have overbuilt and have too many houses to sell, too many apartments to rent, or too much commercial real estate to lease, they seek to recoup as much of their money as possible, even if it means lowering prices drastically.

This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners — in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers — builders and other sectors connected to real estate that suffer setbacks.

The government doesn’t like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was.

I am afraid that policymakers today have not learned the lesson that prices must adjust to economic reality. The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay.

Additionally, the government’s actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased, because they now know that an investment position so overextended as to threaten the stability of the financial system will result in a government bailout and purchase of worthless, illiquid assets.

Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.

The solution to the problem is to end government meddling in the market. Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.

It is time this process is put to an end. But the government cannot just sit back idly and let the bust occur. It must actively roll back stifling laws and regulations that allowed the boom to form in the first place.

The government must divorce itself of the albatross of Fannie and Freddie, balance and drastically decrease the size of the federal budget, and reduce onerous regulations on banks and credit unions that lead to structural rigidity in the financial sector.

Until the big-government apologists realize the error of their ways, and until vocal free-market advocates act in a manner which buttresses their rhetoric, I am afraid we are headed for a rough ride.”

Ventura Questions Government’s Veracity

According to the US Government, who was the mastermind behind the destruction of New York’s World Trade Center during the 911 attacks?

Usama Bin Laden, right?

Former Minnesota Governor Jesse Ventura raised an interesting point during his speech at Ron Paul’s “Campaign for Liberty” convention that operated simultaneously with the Republican National Convention in Minneapolis this week.

According to Ventura, the government accused Bin Laden of the terrorist act, but never indicted him in federal court. Moreover, the FBI’s “Ten Most Wanted Fugitive List” includes Bin Laden, but doesn’t mention his culpability for 911 anywhere.

Ventura surmises that our government justified the Iraq and Afganistan wars by making the 911 connection to Bin Laden as the leader of Al-Qaeda.  So, if the government’s theory is true, then why isn’t Bin Laden connected to the act on the FBI’s website?

What Do You Know About Joe Biden?

Senator Joe Biden has been selected as the vice-presidential running mate for soon-to-be Democratic Presidential nominee Barack Obama.

Born in 1942, Biden is a Delaware Senator and has held that position in government for six terms.  As Chairman of the U.S. Senate Committee on Foreign Relations, Biden enter the presidential race in both 1988 and 2008.

Although blessed with success, Biden’s life hasn’t been always pleasant.

In 1972, when first elected to the Senate, his first wife Neilia, and infant daughter, were tragically killed in an auto accident.  His two young sons were also seriously injured in the accident, but fully recovered.

His accomplishments as a Senator include the creation of a Drug Czar, legislation designed to protect those affected by domestic violence, and college aid and loan programs that allow families to deduct up to $10,000 on their tax returns for higher education expense.

Biden has a comprehensive foreign policy background as well.  During the Clinton administration, Biden led the charge to temper hostilities in the Balkans by traveling to the region.  He gained national attention when labeling Serbian President Slobodan Milosevic as a “war ciminal”, and convincing President Clinton to institute air strikes in that region in response to human rights violations.

He supported the war in Iraq and is on record calling for a larger force of troops, international participation in the conflict, and policies that federalize Iraq allowing the Kurds, Shiites and Sunnis to co-exist.

Biden brings strong foreign policy experience to Obama’s campaign, which is widely recognized and attacked as being weak.