Appotus Dominus

[dnief]

From: http://www.campaignforliberty.org (NH)
Date: Sep 25, 2008 1:04 PM


Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.


We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.


Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.


Still, at least a few observations are necessary.


The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets.
" Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.


Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).


Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk.
"

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.


It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.


The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.


F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar.
In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.


To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.


The only thing we learn from history, I am afraid, is that we do not learn from history.


The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.


The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.


I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.


H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.


In liberty,



Ron Paul

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[IoneMonk]

However one might feel about Paul on cerntain things, I happen to think he's spot-on about this.

I watched the CSPAN coverage of him going after Bernanke over the "Austrian" school predictions. I just haven't heard from Paul a concrete plan to do anything other than suffer through whatever may come and let the "market" right itself. I'm not sure about that either.
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[isha]

same as ione ...i normally dont agree with Paul but he is spot on here
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Brought to you by your class leader on Bull ?x!*

[Scoundrell]

If someone was duped by a now defunct bank into a sub-prime loan, they took on a financial risk. My wife wanted in on this a few short years ago and was pissed at me when I declined trade our $1250 a month mortgage for a $550 a month one. A Sub-prime mortgage was a helpful deal in a area where you wouldn't expect to stay more than 3 years. But folks went for these loans and 5+ years went by... and the loan backfired on them. Some folks bought into these loans because they could not afford their existing fixed rate loan. These folks would have been better off to sell their home, even at a reduced rate, than to take on a sub-prime loan knowing they had no intention to move within 3 years. I am not thrilled about being forced to "bail out" the millions of morons that fell for a sub-prime loan.

Ron Paul wrote a great "I told ya so" but so what. It points fingers and quotes history. There will be a glut of that in the media which only serves to give the presenter the attention they need to sell the books they wrote. We need a solution and Ron Paul is no different than any other Politician in that he has no clue how to "bail out" millions of duped people without crushing the economy.

[Xorne]

The only solution is the crush of the economy. You guys have 2 choices, either you do it now and suffer a year or so of hard times or you continue to print money out of tin air to pay for the "rescue plan" and devaluate your dollar further and lose another 20% of your buying power and suffer a decade of this shit.

The solution they want you to accept is the bailout plan simply because that way the bankers get time to consolidate everything and create a new financial system where the power is in fewer hands. If you burst the bubble now and decide not to bail those people out the market will crash and re-adjust itself within the next year, year and a half (bring down the value of everything that was super inflated like houses).

There is plenty of good information about this crisis out there and obviously, none of them are from the main stream media. If you still think you will get real information out of CNN or Fox News, there is a bridge on the moon I have for sale and you could get it for real cheap, A BARGAIN I TELL YOU!!1 Just send me the money like you would to let's say, humm some princess in Nigeria that have a fortune that she can't access but with your help of a few grand she will get it back and give you millions!!!!11 ZOMG profittsssss!

BTW, the whole housing crisis thing is an excuse they use for you to buy into the bailout idea. The whole housing loan thing is worth 61 billion but they won't tell you that because they want to pass a 700b package to bailout all the dumb investment they made! Just like Bernake said, the American people will have to pay top dollar on these loan and not firesale prices. You know, haven forbid you let the bankers lose money on something they created! Like JP Morgan Chase that have about 14 trillion and they leveraged that to about 105 trillion in derivatives! Go go fractional banking system!

I wish you all a merry bailout and a happy great depression.

With love, Xorne.

[Auger]

Hey All... hope all is well... (where's my update??)

Sorry but wanted to post a little on this as all this junk because it has directly impacted me and my job...

I am a real estate appraiser and have seen some of the problems on the street level that have helped contribute to this problem. I agree with Ron on a lot of his points in here. Back a bit when the fear of forclosures were upon us, researchers did a little study and found that a large majority of foreclosures werent from the standard home owner but were from investors who were trying to turn a fast buck. They bought homes on ARM's, put in a few thousand in repairs and "flipped" them back on the market in hopes of selling before their interest rates got readjusted. When the home didnt sell in that time, and the interest rate shot up on them they abandoned the home and let it go to foreclosure.

Mortgage companies were also major contributors to this problem. Preditory lending practices were used in many cases. Real estate appraisers were held hostage by these companies with black list threats. "If you dont get this value on this home, I will take my business elsewhere to someone who will get that value". They wanted that value for a number of reasons... if they make the full loan, they get a full commission. If the value was inflated, they could manipulate the paperwork to make it appear as if the perspective homeowner had paid thousands of dollars down, without ever taking a penny out of their pockets. Underwriters approve these loans based on the information provded by these mortgage companies and assumed that the information was true and accurite. Many people got homes they never should have qualified for in the first place. Banks werent quite as bad because they actually loan a large amount of cash thats theirs (a standard mortgage company isnt loaning their money, therefore they lose nothing if the loan fails... it hits the underwriters and those above, like Fannie and Freddy).

I refused to play those games and wouldn't appraise properties based on their standards or requests, but rather but the state and federal rules that govern appraisers. Because of this I am basically out of work.

I agree something has to be done to shore up the economy at this time, but further action needs to be taken to prevent this from happening again. There used to be a day when people were required to actually come up with money for down payments. In many cases people would be less likely to just walk away from a home they actually have money invested in. Many people just walked away from the homes when the interest rate they got was adjusted, even though they were not in foreclosure at that time.

Not everyone understands the home buying process, muchless the all the different processes that take place in the background during the purchase. We rely on those in the front office to be honest with the customers, and fully explain whats going on... instead we have people there more concerned on making the loan go thru so they get that fat commission check.

All the money in the world isnt going to resolve this if we dont take action to prevent this from happening again. As the phrase goes "Those who forget the past, are condemned to repeat it..."

BTW... anyone need an unemployed appraiser ??? Guess I'm heading back to the electronics/computer field again...

You all take care, always good to come here and see solid discussions on issues besides EQ... but again I say..."Wheres my update"

[Teklan]

I would like to put my 2 cents in as it affects me as well. My father and his friend got a piece of land and built a modular home on it. This was a big investment and is a lot of work; especially when they both have their 40+ hour weekly jobs. Anyways, the completion of the house came around the time the economy turned sour. Think of a chain reaction of all those forclosures - would someone buy a house that is on the market via banks to not make a profit but to break even; or a semi more expensive house that someone IS trying to make a profit?
So indirectly all these forclosures are affecting the honest persons within the housing economy; it isn't just the get rich quick schemers. Now I wouldn't say its made us broke yet, but paying two mortgages - one being on a brand new house that is of a high value - is not anyone's friend when you don't make much in a year.

[Stryffe]

I'm just gonna vote for this guy.


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I'm betting that I'm just abnormal enough to survive.

[Nefra]

<3 ron, think im still gonna pencil him in on ballot

[tenor]

Scoundrell You seem it be right on also. I wll go further. It is the mentality of credit spending that is crushing people. Do you know the best investment would be to reduce your credit card bill? I have only one friend who spends the way I do. We think of credit card as a 30 day loan that has to be paid back at all cost or u lose your liver. Interest payement on credit cards kills the monthly cash flow. I wonder how much money is paid in interest that America struggles with?
Did you know the government changed the regulation on home loans so that it be easier for those who could not really afford a house to get one? Plus they called it affirmative action loans. banks could not discriminate from lower income people getting a loan. So they were required to give a certain percentage of bad loans. That is what I hear. That kind of good intention paved the way for more financial turmoil. Government meddling and requiring banks to make loans that were obviously doomed to fail has made the financial markets unstable. Is there any truth to that?

I do know that this is truth: America credit mentality - spend spend spend. How many people do you know who keeps their credit card bill at zero balance each month? I only know of a few. The greatest way to save each month is to reduce credit card bill. Many cards have 25% interest. And yet I see ill formed people making investment with a 10% payout. Obviously the greatest investment yield would be to invest in credit card reduction. When the credit card is zero then other investment options make sense.