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History in the Making: Bailout voted down

[UPDATE:  The bailout has been voted down — it has a slight chance of being reversed, but right now the “nays” have it. This piece was written before this news.]

It’s like a scene straight out of Atlas Shrugged. The economy is flailing — quite possible beyond help at this point — dragged down by the easy lending mortgage loan practices made possible by the federally chartered Fannie Mae and Freddie Mac (who received low interest rates on loans in exchange for meeting HUD’s affordable housing goals) — and Congress is currently debating a bill that will give the U.S. Treasury rights to borrow $750 billion of taxpayer money to buy up bad mortgage loans held mostly by investment banking firms. This current crisis is the result of decades of cronyism between corrupt politicians and psuedo-capitalists on Wall Street who expected their gambling debts to be paid by the public coffers. And they were right.

This is a comedy of errors.  The very same people (most notably House Speaker Barney Frank, Sen. Charles Schumer, Sen. Christopher Dodd) who literally ushered in the era of “federally backed” sub-prime mortgage loans (see the Government Sponsored Entity Act of 1992 and subsequent HUD measures) are the same people now orchestrating the bailout.

I have no confidence that this bailout will even work beyond the short-term (one to five years) — and I would have much more confidence in solutions rooted in free-market principles (lowering the capital gains tax, removing the regulations forcing banks to sell off assets, etc.)

Of course, we don’t have a free market now and arguably have never had a truly free-market system (though historically we were much closer up until the early 1900s). Since the early 1900s, we’ve had ever-increasing deficit spending (to the tune of over $9 trillion today), taxation and more and more regulatory controls on businesses. We’ve even seen the government take over and control certain industries, such as utility companies (and now banking!). We have so many acronyms for government regulatory agencies that it boggles the mind — IRS, FDA, EPA, HUD — well, you can just read the list, here, http://www.usa.gov/Agencies/Federal/All_Agencies/index.shtml.

Yet somehow this current crisis is being blamed on “lack of regulation” or “deregulation.” Right. Perhaps you could argue (as some did) that we needed more restrictions on government action with respect to Fannie and Freddie but not more regulatory controls over the market. And, the latest bill, of course, creates yet more agencies and more acronyms. (If you don’t think government regulates business in America, just try to start a small business.)

Whatever true prosperity we do have is in direct proportion to the degree we have free trade and free market conditions. Unfortunately, you cannot have lasting economic prosperity in a mixed economy. Capitalism cannot survive under the stranglehold of regulation, government controls and ownership, taxation and deficit spending (which the government deals with by printing more money and convincing people to buy more T-bills). Eventually, the system will fail, as it is doing now. And it will fail all over the world, particularly in the areas where we see the highest degree of globalization.

The U.S. could take the lead by eliminating its capital gains tax, freeing up businesses to do what they do best (make money) and by letting the banks who made the mistake of getting in bed with government and relied on the public coffers to back its debts. (What reality were they living in? Don’t they know the federal government doesn’t have any money?) Anyone who takes on risk for private profit should not expect public welfare when they lose, even if it was government mismanagement and regulation that led to the problem in the first place. Two wrongs do not make a right, and the ends do not justify the means now.

If this bailout didn’t pass today, would we experience economic conditions worse than the 1930s? I don’t think anyone knows for sure. And with the bill, we will never know what would have happened or how long it would have taken to get out of this bust sans government expansion.

Incremental growth of socialism (the government ownership of the means of production) is like a cancer on a healthy human being. It may start very small and may exist in seeming harmony with the healthy cells for a long time. But left unchecked, it will suddenly dislodge and move to vital organs where its necrosis begins, feeding on living tissue until the vital organs cease to function. You cannot let the cancer cells co-exist forever. You must cut them out completely, somehow, some way.

What we’re seeing now with this bailout is like giving someone vitamins or homeopathic remedies to try to cure lung cancer. The patient may feel good for a while. He can still get up and walk around. He may even live another few years. But in the end he will succumb to the malignancy within.

An alternative is to use more reality-based medicine — put the patient in the hospital and surgically remove the cancerous lung, then perhaps follow with a huge dose of radiation on the surrounding areas to counteract any metastasis. Only then would the patient have a real chance of getting healthy again and living with a higher quality of life.

But no one wants the pain of surgery, no one wants to suffer through its debilitating effects (even if only for the short-term) or experience the painful recovery that follows. It is much easier to swallow a few billion dollars worth of vitamins and put on a happy face. A is A, though, and buying time by throwing taxpayer money after what may be worthless assets (who knows what condition these houses are in?) is not going to solve the very real problems our economic system faces.

But, dire as it sounds, this country still has cancer. The good news is, we are close to a cancer cure — and there is always hope. Perhaps we can survive, muddling along during an Obama presidency, propped up with a devalued dollar, to realize we need to give the healthy parts of our society a fighting chance.

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