Posted on 09/16/2008 3:19:38 AM PDT by oblomov
The failure of Fannie Mae and Freddie Mac, setting in motion the biggest government bailout/takeover in U.S. history, brings a grim sense of fulfillment to competent economists. After all, what did people expect, that water would flow uphill forever?
This financial mega-mess is the same sort of event as the collapse of the USSRs centrally planned economy, another economically unworkable Rube Goldberg apparatus that was kept going, more or less badly, for decades before it fell apart completely. Along the way, of course, famous (yet actually unsound) economists assured the world that everything was working out splendidly. As late as 1989, when the pillars were crumbling on all sides of the temple, Nobel Prize winner Paul A. Samuelson informed readers of his widely used textbook, The Soviet economy is proof that . . . a socialist command economy can function and even thrive.
In the future, we will see a similar breakdown of the U.S. governments Social Security system, with its ill-fated pension system and its even more inauspicious Medicare system of financing health care for the elderly. These government schemes are fighting a losing battle against demographic realities, the laws of economics, and the rules of arithmetic. The question is not whether they will fail, but whenand then how the government that can no longer sustain them in their previous Ponzi-scheme form will alter them to salvage what little can be salvaged with minimal damage to the government itself.
Our political economy is rife with such catastrophes in waiting, yet the public always seems startled, and outraged, when the day of reckoning can no longer be deferred, and another apartment collapses in the states Hotel of Impossible Promises, loading onto the taxpayers more visibly the burden of sheltering the previous occupants.
Each of these time bombs has at least one element in common: it promises current benefits, often seemingly without cost; but if it must acknowledge a substantial cost, it places that burden somewhere in the distant future, where it will be borne by somebody else. From the standpoint of society in general, every such scheme is a species of eating the seed corn. It satisfies the publics appetite to consume something for nothing right now, with no thought for the morrow. It represents the height of irresponsibility by permitting people to live higher today than they can truly afford, financing this profligacy by borrowing recklessly and by taxing politically weak and ill-organized people in order to shower benefits on politically strong and well-organized special interests.
Call it democracy in action or utterly corrupt governance; they are the same thing.
The architecture of the Hotel of Impossible Promises is not arcane. All competent economists understand these things. Ludwig von Mises explained as early as 1920 why a centrally planned economy could not work as a rational system of allocating resources. The reasons why Social Security, especially its Medicare component, and many other such government programs contain the seeds of their own destruction have been explained time and again. Are the politicians who construct these structures really such idiots that they cannot understand the logic of what they are doing?
Not at all. But they are not striving to create economically viable institutions that serve the general public interest; they are feathering their own electoral nests in the only way they can in the context of our political institutions. As H. L. Mencken explained back in 1940, the politicians will all promise every man, woman and child in the country whatever he, she or it wants. Theyll all be roving the land looking for chances to make the rich poor, to remedy the irremediable, to succor the unsuccorable, to unscramble the unscrambleable, to dephlogisticate the undephlogisticable, because they understand that votes are collared under democracy, not by talking sense but by talking nonsense.
And are members of the public so dense that they will fall for such promises? Yes. Moreover, they are greedy, impatient, and immoral, because the present benefits they hope to gain via politics, however unsustainable in the long run, come entirely at the expense of the taxpayers from whom the government extorts its revenues.
Politics, under democracy, Mencken wrote more than 80 years ago, resolves itself into impossible alternatives. Whatever the label on the parties, or the war cries issuing from the demagogues who lead them, the practical choice is between the plutocracy on the one side and a rabble of preposterous impossibilists on the other. And in a declaration even apter now than it was at the time, he concluded that what democracy needs beyond everything is a party of liberty.
The trouble is, however, that now, even more than then, the American people have little interest in liberty. Instead, they want the impossible: home ownership for those who cannot afford homes, credit for those who are not creditworthy, old-age pensions for those who have not saved, health care for those who make no attempt to keep themselves healthy, and college educations for those who lack the wit to finish high school. Moreover, they want it now, and they want somebody else to pay for it.
If you think that Fannie and Freddies bust is a big deal, just wait until Medicare comes crashing down. Then, the wailing and gnashing of teeth will be truly unbearable. As that day rapidly approaches, however, youll notice that the politicians are doing utterly nothing to forestall it.
This is a truth, and usually exactly what the Socialists throughout America clamor for. They don't think they are "socialists", they just think they're asking for their emotively-"earned" "40-acres and a mule".
Bitter medicine, but not surprising.
Bread and circuses... The eternal curse of democracies.
Might as well grab a loaf and get into the Big Tent while the show is still on....
I wonder how long I have to get my “house in order” to weather the storm.
I'm currently reading a book titled "The Forsaken" about people who immigrated from the US to the USSR in the 30's. Some just looking for a job and some, attracted to the idea of the "socialist utopia". Tens of thousands died chasing the facade of socialism. Looks like we're gonna repeat that here in the US as the federal government continues to grow and grow and grow and dictate more and more of what we can and cannot to. Try to open a business, you'll see what I mean.
Here's hoping for the best!
The people stealing billions from Fannie and Freddie need to be in prison, not advising Obama’s campaign.
B-U-M-P everyone’s accusing me
They understand exactly what they are doing.
They fully intend to be a permanent ruling class of a people who have lost the ability to care for themselves.
My fear isn't that these institutions will go belly up. My fear is that the hue and cry from the "government will fix everything" addicts will be for a more Utopian form of government.
A government where all the people have all they desire. A government that outlaws floods, hurricanes, sickness & death.
A government that makes pain & suffering a thing of the past. Where God is dead, and ignorance is rewarded with a free credit card, and a zero interest loan on a 40 acre estate.
A government like say ... Cuba, or the old Soviet Union, or even like China.
This crisis will continue for several more years.
The sooner you get your financial house in order, the better.
Who knows what kind of crazy ideas a President Obama might implement with the aid of a Democratic Congress.
I agree with your comments about what I call “the statist generation”. They will sink us, and believe that they are simply getting their due.
There will come a time (not so far away) when, despite our best hopes and intentions, it will be necessary to put our family flags above the country’s flag. I believe that currency controls are not far off.
Because of concerns about a collapse like this, I am very glad we sold our Ginnie Maes earlier this year and are now debt free.
Prudent practice in normal times, now very wise planning. No more payments because of a stock with no more value.
The trouble is, however, that there are no competency requirements for people to vote. They need to know nothing about the responsibilities and principles of democracy, the fundamental aspects of citizenship in the community, citizenship in the nation, and citizenship in the world.
Democrats and other elites want all the dregs and morons to vote without any understanding of cause and effect, responsibility, enlightenment, or knowledge; just vote as told especially for entitlements and other promises by the party of choice. To them there is no need to know how our system of government works.
There was a time when basic competence was required, was there not?
Are there specific steps anyone would recommend for getting ones financial house in order? I have little debt and had no investments in the mortgage market and I'm still bathing in blood.
Congress and DOJ won't do anything but..
A few days ago lawyers from Coughlin Stoia filed a lawsuit on behalf of shareholders of Fannie Mae in federal court in Manhattan against four former or current Fannie officers or directors. The shareholders are alleging that "the four Fannie Mae executives made materially false and misleading statements about Fannie Maes business and prospects and misrepresented the Companys financial statements which, in turn, artificially inflated Fannies share price."
I believe that share price increases determined the amount of bonuses.
She's a liberal democrat and could care less about how this impacts her children or her grandchildren. By goodness, she “paid” into the system (though she really didn't) and now she's entitled to her due. It's sickening. That's why I call them the “worst” generation.
The generation before them aptly called the “greatest” generation would never view things the way the “worst” does. They would have continued to sacrifice for the good of others and the country. Not this generation, they'll vote themselves bigger increases if possible. Look who put Charlie Rangel in office all these years, “statists”.
I agree with the earlier post about getting our financial houses in order. Tough times are coming.
Hmmm,... Harold Raines,... Harold Raines,....
... Oh, I remember. Isn't he advising the Obama Campaign on economics?
Why isn't he advising his prison cell mate on stock picks, instead?
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