A Political "Solution"

Thomas Sowell
Tuesday, September 23, 2008


Who was it who said, "crack-brained meddling by the authorities" can "aggravate an existing crisis"? Ronald Reagan? Milton Friedman? Adam Smith? Not even close. It was Karl Marx. Unlike most leftists today, Marx studied economics.

Is the current financial crisis going to lead to crack-brained meddling or to some rational actions? Predicting what politicians are going to do is risky business. We will have to wait and see.

Saints are no more common on Capitol Hill than they are on Wall Street. We can only hope that the political "solution" does not turn out to be worse than the problem.

There are times when government intervention can make things better. But that is no guarantee that it won't make things worse. As they say, "the devil is in the details"-- and we don't know the details yet.

Probably most members of Congress don't know the details yet-- and many may still not know the details when the time comes for them to vote on this bailout.

Taking an optimistic view, this biggest bailout of all time may stop the problems in financial markets from spreading into the general economy-- which is currently nothing like the disaster area that the media portray it to be.

Ninety percent of the people on this planet would exchange their economic situation for ours in a minute. The media love hype, and have been dying to use the word "recession" all year but nothing has happened that meets the definition of a recession.

The American economy is growing, not declining. Our unemployment rate is up to 6 percent but there are countries that would be delighted to get their unemployment rate down to 6 percent. Our inflation rate is up a little but many countries would love to get their inflation rate down to where ours is.

Why then is there such a mess in the financial markets? Much of that mess is due to the very people we are now turning to for solutions-- members of Congress.

Past Congresses created the hybrid financial institutions known as Fannie Mae and Freddie Mac, private institutions with government backing and political influence. About half of the mortgages in this country are backed by these two institutions.

Such institutions-- exempt from laws that apply to other financial institutions and backed by the implicit promise of government support with the taxpayers' money-- are an open invitation to risky behavior. When these risks blew up in their faces, Fannie Mae and Freddie Mac were taken over by the government, costing the taxpayers billions of dollars.

For years the Wall Street Journal has been warning that Fannie Mae and Freddie Mac were taking reckless chances but liberal Democrats especially have pooh-poohed the dangers.

Back in 2002, the Wall Street Journal said: "The time for the political system to focus on Fannie and Fred isn't when we have a housing crisis; by then it will be too late." The hybrid public-and-private nature of these financial giants amounts to "privatizing profit and socializing risk," since taxpayers get stuck with the tab when high-risk finances don't work out.

Similar concerns were expressed in 2003 by N. Gregory Mankiw, then Chairman of the Council of Economic Advisers to President Bush. But liberal Democratic Congressman Barney Frank criticized Professor Mankiw, citing "concern for housing" as his reason for supporting Fannie Mae. Barney Frank said that fears about the riskiness of Fannie Mae were "overblown."

Maxine Waters and other members of the Congressional Black Caucus have also been among the liberal Democrats defending Fannie Mae. Just last year, Senator Charles Schumer advocated legislation to allow Fannie Mae and Freddie Mac to increase their already huge role in the mortgage market. Republican Congressman Mike Oxley has also defended these hybrid financial giants.

Both Fannie Mae and Freddie Mac have been generous in their contributions to politicians' political campaigns, so it is perhaps not surprising that politicians have been generous to them.

This is certainly part of "the mess in Washington" that Barack Obama talks about. But don't expect him to clean it up. Franklin Raines, who made mega-millions for himself while mismanaging Fannie Mae into a financial disaster, is one of Obama's advisers.

__________________
Liberals are people that will believe anything twice.

So... Out of curiousity... Do you just post other peoples articles, and then later give your opinion on what they say, or do you post your own articles too?

__________________
speaks louder than words.
Problems on the forum? Contact me here!

The American economy is growing, not declining. Our unemployment rate is up to 6 percent but there are countries that would be delighted to get their unemployment rate down to 6 percent. Our inflation rate is up a little but many countries would love to get their inflation rate down to where ours is.

The articles states the economy is growing and then lists two ways its declining. How is our economy growing again? Let's ask John McCain... oh wait... according to his 60 minutes interview, he doesn't know the "technical definition" of a recession. Just tell him to "google" it! Oh wait... he can't use a computer.

__________________

I don't know, I think the American economy is going to crap... Are you in the US? Do you ever read the newspaper out here?

__________________
speaks louder than words.
Problems on the forum? Contact me here!

Read my post again, I'm agreeing with you and quoting the article.

__________________

vi, quoting yesterday's talking points is a big risk in these days of made up stories. franklin raines is not one of obama's advisors and this is simply an attempt to divert attention from repub failures to manage freddie and fannie.

__________________
don;t trust me when i'm baked, i make shit up. bud stud in training - at http://www.rollitup.org/grow-journal...ts-always.html and http://www.rollitup.org/grow-journal...melicious.html

Actually, I post articles that I find interesting in an effort to get the dialog going. Also, I DO post my own original thought.

But ... why do you ask?

Vi

__________________
Liberals are people that will believe anything twice.

6% Unemployment isn't a crisis. Yeah, it's higher than 5% but most of that 1% probably came from banking, and banking is/was screwed up.

As far as inflation, that's nothing to do with the economy that's to do with the continued devaluation of the dollar due to a lack of intelligent management by idiots like Greenspan and Bernanke. And by inept federal regulators that allowed the creation of the Fractional Reserve Banking System.

Take in 100, lend 90, take the 90 back in deposits, lend out another 81, and voila, you have 271 in deposits (liabilities for a bank) and 171 in loans from an original 100 dollars.

Funny, I wish I could make money like that.

__________________
Libertas inaestimabilis res est - Liberty is a thing beyond all price. | Sic Semper Tyrannis

A recession is not defined in numerical terms. There is no point in which the economy gets bad enough you call it a recession. A recession defined by a decline over a period of time, not "it's not that bad because this time was worse". If things we're really good and now they are getting worse, it's still a recession even if it's not that bad.

A recession is a contraction phase of the business cycle. The U.S. based National Bureau of Economic Research (NBER) defines a recession more broadly as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."[1

Can any of you actually argue that we are not experiencing this exact definition right now?

__________________

I always find it interesting that a 5.5% unemployment rate under Clinton is considered a great economy, while a 5.5% unemployment rate under Bush is considered to be a recession.

http://gatewaypundit.blogspot.com/20...s-clinton.html

Vi

__________________
Liberals are people that will believe anything twice.