Bailees and Bailers
By Tom Hurst, 21 January 2009
As we end the year 2008 and enter 2009, America's economy is in shambles primarily because government has sabotaged the essential workings of the free market by removing and then socializing essentially all risks associated with private investments. It's done this for many decades and in many ways: via the Federal Reserve Bank's artificially low interest rates have misdirected vast sums of money into real estate "investments", money that otherwise would have been more wisely invested elsewhere; via the State's implicit and explicit backing of Fannie Mae and Freddie Mac, renegade Government Sponsored Enterprises that never saw a mortgage they wouldn't buy, bundle and then pass on as a supposedly safe "investment", despite the fact that private mortgages are in all cases more wisely offered; via the State's backing of all sorts of politically connected investment banks and funds, entities that themselves knew they were too "big to fail" in the eyes of politicians and the public, and hence took on shocking amounts of risk; via the Federal Reserve's never-ending printing of money, which is then given all who worship at its altar; and even via the provision by the FDIC of "deposit insurance", which in reality only insures that depositors don't give a damn about the solvency of the institutions where they keep their money.
All of these things and many others totally destroy the essential self-regulation that makes free markets the miracles they are. Indeed, in a true free market we would have had no real estate bubble (and no tech bubble, etc.) and no outrageous risk-taking in the first place because investors would be self-regulating in that the risks they would have taken would always have been proportional to both the potential rewards and potential losses. But being in the clutches of egomaniacal government - socialist Keynesian economists all - and politically connected and therefore powerful corporate interests, the economy essentially collapsed and only one supposed solution was put forth: the mother of all bail outs, which is itself yet another destroyer of free market self-regulation and great distorter of markets. So, in light of the above, I think it would be interesting to have a look at just who is benefitting by being bailed out.
Commercial banks: Banks of any size will not be allowed to fail, period, because in a fiat currency system where "money" has no intrinsic value, people cannot be allowed to lose faith in either banks or the green-inked paper they trade in. Of course, the FDIC has increased their "insurance" coverage to $250,000, creating the perverse incentives of inducing both individuals and banks to accept higher risks because they are supposedly insured against loss. Never mind that the FDIC has already run out of money several times in the past year and thus required its own bail out with our tax dollars. Imagine what will happen when they have to bail out a truly big bank, or all of the banks! I'm guessing banks would be nationalized at that point, and our assets in them valued at whatever small value the government will attribute to them. But until then, it will be business as usual for the banks, but using tax dollars instead of their own dollars as working capital.
Investment banks: These have come to be very high risk investors because they know government will bail them out and make their "investments" whole no matter what. And even as they get bail-out money, they will continue in their old ways because the receipt of such money proves that mother government will indeed always take care of them. Make no mistake, their main goal is to privatize profits while at the same time socializing losses by using their corrupt connections in government to reduce or eliminate the risks they choose to take. Indeed, though they claim to be free marketeers, they are actually fascists, using the power of government to do their bidding.
Auto companies: They will get money because they make crappy, over-priced cars that no one wants to buy, and money to preserve the jobs of unionized parasites who - courtesy of ridiculous FDR-era pro-union laws - make several times what they would earn in a free market. In a free market, such mismanaged companies with lousy products and overpriced employees should be allowed to fail so that their better-run competitors might benefit. The benefit of bankruptcy would be that any worthwhile or productive assets would be purchased by companies that thought they could make reliable, reasonably-priced cars that people would buy. The automotive unions, too, should fail so that wages in that sector will come down to match the labor market demand for those particular skills. Of course, the government does the bidding of their cronies, so will bend over backwards to save both the companies and the unions.
Airlines: We haven't seen this yet but it's more than likely coming just as it already has in a few other countries.
Labor unions: Aside from those working for the auto companies, they'll be lots of union work in the infrastructure bailout as government pays top dollar plus for everything related to "infrastructure". The worst part is that unions have made their gains not by increasing productivity, but by coercing private companies courtesy of FDR's decades old pro-union laws - laws that would not exist in a truly free market where people *earn* their wages instead of forcing them. And don't forget that union gains come at the expense of everyone else.
Mortgage holders: People who bought more house than they could afford will make out like bandits here. While many of us have struggled for decades to make our house payments, the bailees who cannot make their payments or are underwater on their mortgages will likely get sweetheart interest deals and even principal reductions. For sure, my life would have been easier if I'd had mother government do that for me. Unfortunately, I'll be the one subsidizing those who are so lazy and/or stupid that they bought houses beyond their means. It is simply a fact of life that not everyone can or should own their own home, and government cannot change that, nor should it even try. And it is also a fact that good people make bad investments every day, and that government should not make them whole when they lose money, for such bail-outs must necessarily come from people who made good, responsible investments.
Auto loan holders: Evidently, even as I write this, there exists an interest-free government car loan program that will provide buyers $7500 re-payable over - get this - 15 years! While I heartily applaud private transportation over the more expensive (per person per mile), more polluting government transit systems that are all the politically correct rage these days, it is only fair and responsible that people should buy cars appropriate to their income and on terms that match their credit-worthiness.
Credit card holders: Instead of saving and investing, most Americans have been living on credit far beyond their means to repay it. Consequently, one of the chips still to fall will be massive defaults in consumer credit. There is talk that these people will be bailed out, as well as the issuers of their credit.
Student loan holders: Get ready for heavy subsidies in this area, mosty to keep hyper-inefficient government universities afloat. Never mind that every study ever done shows that universities increase their fees every time loan amounts increase, driving the rate of college inflation to double that of health care inflation. What we really need to do to encourage efficient colleges that everyone can afford is to remove the government student subsidy completely, and the best way to do that is to have only private universities. Only this will deter parasites who only go to college because taxpayers foot most of their bill, and university administrators who - for the same reason, money - do anything they can to get both the cost and the student body count up. And, don't forget that students with loans constitute a huge voting block that will vote for their own subsidies!
States, Counties and Cities: Though they all laughably claim to provide "vital" services efficiently, for the most part the "services" they provide are neither vital or efficient. And, on top of that, years of economic growth has dramatically increased the number of employees they have and bloated their budgets. And let's not forget the many trillions of dollars of unfunded pension liabilities for our overpaid, under-worked public employees. Of course, in the end, states, counties and cities will go bankrupt and get bailed out by taxpayers. What they really need to do is to mostly go away and let citizens manage their own lives. As an aside, you might find it interesting (or perhaps shocking and disturbing) that the only employment sector that grew in 2008 was government!
Poor people with children: Not to single out the poor, but the fact is that the 50% of people in this country who pay no income taxes in the first place will probably somehow be receiving thousands of dollars per child (called a "tax credit" officially). What a perverse incentive, to encourage people who cannot afford to have children unless others pay for them, to have more children. And then there's never-ending welfare, unemployment, food stamps and a couple of hundred other programs that benefit them, all given without any expectation of work or payback. Only in our increasingly socialistic America!
Finally, there's the pure pork in the infrastructure bill, i.e. the parasites that will be getting water parks, tennis courts, museums, landscaping, inefficient "green" energy sources, computers and such. All "critical and vital needs", of course, in the eyes of the corrupt and tyrannical nanny state. To us who through our productivity earn the money they waste, though, it is irrational to spend money on things we don't want or don't need, or on things that are inefficient, for we know that the free market - cued by prices - will efficiently provide goods and services at affordable prices whenever and wherever there is sufficient demand. But that law of nature does not concern government at any level, for their only goal is to increase government's size, scope and power, productive taxpayers be damned.
As you might have noticed, all of the above-listed entities share certain characteristics. First, they are all incompetent and/or corrupt and/or parasitic and/or inefficient. They are entities that, if they cannot make it on their own, *should* fail, as their failure would make room for similar entities that would be good enough to make it on their own without government "help". They are entities that somehow think they have the right to take the hard-earned money of those individuals that are productive, and to control the lives of those same individuals. Of course, this observation demonstrates yet again two sure laws governing the State in all ages and in all places: 1) government always and only consumes wealth, while only the private sector and individuals produce wealth, and 2) government itself is the negation of liberty.
Enough about the Bailees. As for the Bailers (those providing the bailout money), well, that would be the shortest list that can be, a list of just ONE: responsible, productive people who work hard, pay their bills and plan for their financial future. Yes, ironically, these individuals who in a free society would be rewarded above all others for their efforts and sacrifice are instead incessantly and brutally punished in our socialist society of too much government. To benefit both government itself and the irresponsible, incompetent and corrupt Bailees, government will without shame take the Bailers' earnings by force and then at the same time inflate the Bailers' remaining savings into nothing. What a sad requiem for what was once the bastion of liberty, free markets and property rights!
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[Other articles may be accessed via the Archive page.]