Plenty of cults exist - every cult has its 'religious dogma', its idols, its 'prophets', its 'science', its 'proof' and its intolerant liturgy of demands. Cults everywhere: Corona, 'The Science' or Scientism, Islam, the State, the cult of Gender Fascism, Marxism, Darwin and Evolution, Globaloneywarming, Changing Climate, Abortion...
Tempus Fugit Memento Mori - Time Flies Remember Death
This crisis has nothing to do with 'capitalism' or markets. Even Bush understands that.
by Lego Acies
Back in the 1990s many Marxist and Socialist commentators lamented the tepid increase in globalisation and the rise of some form of individual freedom across much of the world. For these statists, the power of trade, the individual and freedom of choice would entail a decrease in governmental power, welfare the caring institutions of the nanny state. They should not have been so concerned. A government and regulatory created financial panic will result in the endless accretion of state power; more international rules and regulations and more programs of love and caring for the unwashed, terrified masses. Jubilee.
What caused the current crisis ? It is not a simplistic matter of Wall Street greed, though the Ivy League and Harvard trained buffoons on Wall Street creating products and credit instruments that they did not understand, are certainly a key element in the crisis. The core of the issue lies in the socialisation of housing finance; regulatory corruption and the friendly-crony capitalism which exists in the US and Europe between bankers and their political masters. This destructive government distortion of markets can be identified as follows:
1.Market distortion. The 1930s creation of government institutions to lend money or mortgages to home buyers, weirdly named Freddie Mac and Fannie Mae. These firms were backed by the US government and were incentivised with cheap taxpayer money to lend to those who could not afford a mortgage. Between 2002 and 2007 the loan portfolios of these 2 companies doubled and they held almost 2/3 of all bad sub-prime or bad grade mortgage debt by 2008. There was never a good reason for these firms to exist and 60 years of socialist engineering was bound to result in a disaster at some point in the housing market.
2.No oversight of Freddie and Fannie and no oversight of lending standards for banks. A key element of a real capital market is the creation of laws and fair regulations. The regulators did not implement the myriad and existing regulations to determine if the bad grade or sub-prime lending posed a risk to the American financial system. There are numerous stories of speculators buying many homes or condos with no money down, and even a book was written by a Washington speculator who bought 50 condos with no money down and flipped them within one year.
3.Corruption. Kickbacks from Freddie and Fannie and Wall Street, to regulators and politicians were famously extensive. Obama was # 1 and #3 on the pay off list of Freddie and Fannie, and regulators such as Chris Cox of the SEC and Barney Frank of the Senate Banking Committee whose job was to oversee the US Banking sector were in the top 3 as well.
4.Subsidies. The US government since the days of Jimmy Carter made home ownership a national objective. When Bush took office the ownership rate was about 64%. US politicians were public in announcing that over 70% of Americans should own a home. To this end home builders and developers received tax breaks and subsidies totalling billions of dollars over 30 years to build housing. Home buyers were given subsidies and write offs as well to induce home buying.
5.Cheap money. For 4 years from 2001 to 2005 the US had negative real interest rates and flooded the credit markets with cheap money. Lending standards collapsed as people took more credit, equity lines and credit cards to purchase items they could not afford. Financial prudence was replaced at the individual level by a government created culture of credit, spending and unnecessary risk taking.
6.Market manipulation. US politicians and a variety of socialist programs in the Housing and Urban Development agency; and in Community Reinvestment Acts including groups like ACORN, delivered more or less free money and cheap loans to people who had no business getting a loan. Minority programs, lending programs to help blacks and poor whites and other special 'categories' were created to push loans into the hands of those too poor to afford them.
7.Wall Street stupidity based on moral hazard. In order to dilute the toxic nature of bad loans, banks and mortgage lenders allowed Wall Street geniuses to package various bad loans together into a derivative which took pieces of the bad loan and packaged them with other bad loans which were sold off as credit instruments to other financial institutions. Insurance contracts against default on these loan payments were also passed on to the buyers of these derivatives. The problem was that Wall Street and most banks assumed that house prices would always go up – the market after all was effectively insured by the US government. This moral hazard – that the US government could not let Fannie and Freddie and the important housing market go bust – generated a wide range of reckless credit instrument creation on Wall Street.
House prices are the root of problem, and as with any product, house prices can rise or fall. When house prices due to the above causes and exacerbated by a massive over supply in the key regions of California, Arizona and Florida collapsed, it was not long before over-leveraged banks and over-leveraged house speculators had to declare bankruptcy.
So after 60 years of government market distortion resulting in the erasure of about $30 Trillion of wealth through housing price declines and a 40% stock market decline, the politicians answer will be of course to have more government involvement, more over-sight, and of course a lot more spending.
So far the Democrats and Bush have spent $3.5 Trillion in misguided and ineffectual efforts to stop the markets from falling. You can't spend or print your way out of a problem which has been in development over many years. The printing of money to create market liquidity will come at a huge future price in inflation, a devalued currency and by extension, a rapidly lower standard of living. The $1 Trillion in bailouts and welfare handouts will not save the banks, the markets or the poor, but they will make future taxpayers suffer tax increases to pay off the debt and accumulated interest.
The US government could have bought all the outstanding sub-prime, low grade house loans for about $500 billion and effectively stop the bleeding and the market crisis at that moment. But that would be far too simple. Politicians smell a grand opportunity – almost as large as the Globaloney Warming nonsense – to impose themselves and their ridiculous views of the world on others by creating fear, heightening millenial rhetoric and posing government as the only answer to save us all from oblivion. These geniuses created the problem and now they want more power ? Fascinating logic.
As Bush, himself a supporter of large government projects and 'compassionate' conservativism so rightly said in a November 14th 2008 speech at the Manhatten Institute in defending markets, we need less government not more:
“Capitalism is not perfect. But it is by far the most efficient and just way of structuring an economy. Capitalism offers people the freedom to choose where they work and what they do, the opportunity to buy or sell products they want, and the dignity that comes with profiting from their talent and hard work. The free market provides the incentives to work, to innovate, to save, to invest wisely, and to create jobs for others. And as millions of people pursue these incentives together, whole societies benefit.
Free-market capitalism is what makes it possible for a husband and wife to start their own business, or a new immigrant to open a restaurant, or a single mom to go back to college and to build a better career. It is what allowed entrepreneurs in Silicon Valley to change the way the world sells products and searches for information. It's what transformed America from a rugged frontier to a nation that gave the world the steamboat and the airplane, the computer and the CAT scan, the Internet and the iPod.
Free markets allowed Japan, an island with few natural resources, to recover from war and grow into the world's second-largest economy. Free markets allowed South Korea to make itself into one of the most technologically advanced societies in the world. Free markets turned small areas like Singapore and Hong Kong and Taiwan into global economic players.”
Individual reedom and free and fair economic exchange are synonymous. You cannot have regulated, state controlled markets and freedom of speech, choice and contract. You cannot decrease individual freedom and have a free and fair market economy. The two concepts of personal and economic freedom are linked – you impair or decrease one and the other will surely follow.
Over 60 years of socialised housing finance and government intervention resulted in moral hazard and a financial crisis which has wiped out the equivalent of 3 US GDP's from personal wealth accounts. Giving such creatures of manipulation more power, or the ability to wantonly and with great enthusiasm to spend money we don't have is irrational and will only sow the seeds of the next great financial crisis which will occur in about two years. At that time we will hear the same appeals to community and love and watch the same group of politicians offer themselves and more government power, as the solution to save the world.
