A Warning About the Socialistic Economic Bailout

Let me clearly state that I don’t like or approve of the recent federal intervention in the United States economy. Government policy over the past three decades, pushed to extremes by left-leaning and radical groups like ACORN and using the Community Reinvestment Act, created the corrupt lending environment that was exploited by Fannie Mae and Freddie Mac to produce the toxic mortgage situation in which we find ourselves. So, since government is primarily responsible for this crisis, why should we then trust government to fix the problem they created?

This unfavorable economic environment is not a shortcoming of capitalism. It is a direct result of government manipulation within our economy for the benefit of a few people. Sometimes manipulation gives an unfair advantage to the rich and sometimes the poor. In this current environment, those who should not get a loan it were encouraged to borrow beyond their means.  While historically no bank would loan money under such terms, Fannie and Freddie created an unnatural market for banks to offload risky mortgages. The result was the poisoning of our entire financial system.

Unfortunately, as is often the case, the federal government stepped in and removed even more of our individual freedoms and made our economic system less of a capitalistic one and more like a planned economy under socialism. To give you an idea of the extent of the change, we’re now talking about the government owning or nationalizing large portions of our banking system. We’re also talking about government confiscating taxpayer money to buy up and refinance failing mortgages. We’re also talking about government, not shareholders, owners or investors, telling companies how much they can pay their employees and how to run their businesses. Sounds more like the old Soviet Union than what the Founding Fathers set up, doesn’t it?

This is an extremely dangerous precedent that will severely damage our economy in the long run. It makes the American taxpayer the ultimate holder of risks that the market should allocate to willing investors. It also gives government enormous control over our economy, our money and our everyday lives. In effect, a government bureaucrat will soon be deciding who can borrow, how much they can borrow and under what terms. In the name of fairness and environmentalism, other factors will probably be imposed later like how large our house can be and whether we really need what we can afford.

Instead of the massive bailout that was adopted, I wish government had essentially stepped out of the picture and removed as many of the artificial market distortions imposed on our economy as possible. True, those who foolishly risked assets would go bankrupt but those assets would not disappear (yes, all those over-mortgaged houses would not evaporate into thin air and people would still have places to live). Instead, those assets and failing institutions would be transferred to their creditors who would carry on the business of finding renters and owners for them. The system would have adjusted and done so relatively quickly compared to this permanent fix imposed by the government.

Furthermore, such a capitalist move would have injected more fairness and rational decision-making into our economic system instead of advancing our nation down the slippery slope of socialism. Power corrupts. Whether power is concentrated in the hands of government or unfair markets, it still corrupts. The best fix would have been for government to ensure that free markets existed and then to step back and let the incredibly creative innovations of the American people solve the crisis.

In conclusion, the current economic crisis was caused by government intervention in the first place and will not be fixed by yet another bigger government intervention. It is utter foolishness to grant government more power to tinker with our economy. It is especially dangerous to further empower those same forces who pushed the radical agenda that first took our government down the destructive path of socialism decades ago. Furthermore, I’m also very troubled by the lack of real resistance to this massive erosion of our precious American freedoms.

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