Nice to see Ron Paul in the news again

http://www.cnn.com/2008/POLITICS/09/23/paul.bailout/index.html

Quote :

" (CNN) -- 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. When interest rates are lowered to below what the market rate would normally be, as the Federal Reserve has done numerous times throughout this decade, it becomes much cheaper to borrow money. Longer-term and more capital-intensive projects, projects that would be unprofitable at a high interest rate, suddenly become profitable. 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. The opinions expressed in this commentary are solely those of the writer. "

9/23/2008 12:26:36 PM

does anyone have direct RECENT (like today) links about obama's and mccain's position on the bailout?

9/23/2008 1:18:34 PM

Ron Paul is antisemitic and racist. He shouldn't be allowed to question Ben Bernanke.

9/23/2008 1:23:35 PM

Until Congress hashes out the final details of the bailout, I don't think we'll see anything concrete beyond talk of cutting golden parachutes and protecting "Main Street" Americans.

9/23/2008 1:25:04 PM

watch the video with the article.

awesomeness.

9/23/2008 4:23:50 PM

Quote :

"As economists, we want to express to Congress our great concern for the plan proposed by Treasury Secretary Paulson to deal with the financial crisis. We are well aware of the difficulty of the current financial situation and we agree with the need for bold action to ensure that the financial system continues to function. We see three fatal pitfalls in the currently proposed plan: 1) Its fairness. The plan is a subsidy to investors at taxpayers’ expense. Investors who took risks to earn profits must also bear the losses. Not every business failure carries “systemic risk.” The government can ensure a well-functioning financial industry, able to make new loans to creditworthy borrowers, without bailing out particular investors and institutions whose choices proved unwise. 2) Its ambiguity. Neither the mission of the new agency nor its oversight are clear. If taxpayers are to buy illiquid and opaque assets from troubled sellers, the terms, occasions, and methods of such purchases must be crystal clear ahead of time and carefully monitored afterwards. 3) Its long-term effects. If the plan is enacted, its effects will be with us for a generation. For all their recent troubles, America’s dynamic and innovative private-capital markets have brought the nation unparalleled prosperity. Fundamentally weakening those markets in order to calm short-run disruptions is desperately short-sighted. For these reasons, we ask Congress not to rush, to hold appropriate hearings, to carefully consider the right course of action, and to wisely determine the future of the financial industry and the U.S. economy for years to come."

Signed,

Everyone: http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm

This bailout stinks to high heaven

9/23/2008 7:06:40 PM

Quote :

"This bailout stinks to high heaven"

9/23/2008 8:09:31 PM

Quote :

"Gary North: Whoever is elected President in November is going to preside over the worst financial disaster in American history in the postwar era. Some lucky soul is going to lose this election. You had better batten down the hatches. "

9/23/2008 8:15:43 PM

I was listening to NPR on the ride home today and an interesting point was brought up in regards to the treasury guaranteeing money market funds to prevent a "run" due to recent high withdraws.

However, the bankers association noted that this would cause money market funds to carry less risk than traditional savings accounts that are FDIC insured. Then, there could be mass withdraws from regular savings accounts. This in turn would cause their ratios to go down and they would be able to lend less.

As such, the treasury went back over the weekend and changed the initial guarantee to only cover existing money in money markets - not new money.

This oversight proves that the FED/Treasury are not entirely sure what the results of their plans could be. And while they whack-a-mole in one spot, it causes another one to pop up somewhere else. I really think they should have seen the aforementioned problem coming.

[Edited on September 23, 2008 at 8:21 PM. Reason : .]

9/23/2008 8:20:33 PM

Bailouts will lead to socialistic America. I read it in Time magazine.

9/23/2008 10:23:11 PM

Quote :

" As such, the treasury went back over the weekend and changed the initial guarantee to only cover existing money in money markets - not new money. This oversight proves that the FED/Treasury are not entirely sure what the results of their plans could be. And while they whack-a-mole in one spot, it causes another one to pop up somewhere else. I really think they should have seen the aforementioned problem coming. "

I heard that too, and it struck me hard.... amazing that they were willing to unilaterally come in and demand $100B in the next 12 hours, "or else....", and they were unaware of the apparently massive oversight

9/23/2008 10:27:57 PM

Sometimes contemporary capitalism seems reduced to the level of a few rich people constantly changing the rules of the game so that they can't possibly lose.

9/23/2008 10:45:32 PM

http://blogs.wsj.com/marketbeat/2008/09/24/now-prohibited-from-shorting-ibm/?mod=yahoo_hs

again, why is IBM on the no short list? why is gm and ge on the no short list?
what a joke
more proof of the need of more oversight, and im surprised ibm went for this, it seems like such a temporary move to get a small share price bump

9/24/2008 12:39:40 PM