Tell it like it is!

[Dredly]

Statement of Congressman Ron Paul

United States House of Representatives

Statement on HR 1424

October 3, 2008

Madame Speaker, only in Washington could a bill demonstrably worse than its predecessor be brought back for another vote and actually expect to gain votes. That this bailout was initially defeated was a welcome surprise, but the power-brokers in Washington and on Wall Street could not allow that defeat to be permanent. It was most unfortunate that this monstrosity of a bill, loaded up with even more pork, was able to pass.

The Federal Reserve has already injected hundreds of billions of dollars into US and world credit markets. The adjusted monetary base is up sharply, bank reserves have exploded, and the national debt is up almost half a trillion dollars over the past two weeks. Yet, we are still told that after all this intervention, all this inflation, that we still need an additional $700 billion bailout, otherwise the credit markets will seize and the economy will collapse. This is the same excuse that preceded previous bailouts, and undoubtedly we will hear it again in the future after this bailout fails.

One of the most dangerous effects of this bailout is the incredibly elevated risk of moral hazard in the future. The worst performing financial services firms, even those who have been taken over by the government or have filed for bankruptcy, will find all of their poor decision-making rewarded. What incentive do Wall Street firms or any other large concerns have to make sound financial decisions, now that they see the federal government bailing out private companies to the tune of trillions of dollars? As Congress did with the legislation authorizing the Fannie and Freddie bailout, it proposes a solution that exacerbates and encourages the problematic behavior that led to this crisis in the first place.

With deposit insurance increasing to $250,000 and banks able to set their reserves to zero, we will undoubtedly see future increases in unsound lending. No one in our society seems to understand that wealth is not created by government fiat, is not created by banks, and is not created through the manipulation of interest rates and provision of easy credit. A debt-based society cannot prosper and is doomed to fail, as debts must either be defaulted on or repaid, neither resolution of which presents this country with a pleasant view of the future. True wealth can only come about through savings, the deferral of present consumption in order to provide for a higher level of future consumption. Instead, our government through its own behavior and through its policies encourages us to live beyond our means, reducing existing capital and mortgaging our future to pay for present consumption.

The money for this bailout does not just materialize out of thin air. The entire burden will be borne by the taxpayers, not now, because that is politically unacceptable, but in the future. This bailout will be paid for through the issuance of debt which we can only hope will be purchased by foreign creditors. The interest payments on that debt, which already take up a sizeable portion of federal expenditures, will rise, and our children and grandchildren will be burdened with increased taxes in order to pay that increased debt.

As usual, Congress has show itself to be reactive rather than proactive. For years, many people have been warning about the housing bubble and the inevitable bust. Congress ignored the impending storm, and responded to this crisis with a poorly thought-out piece of legislation that will only further harm the economy. We ought to be ashamed.

[moose]

Why didn't the government just allow these companies to fail, as they normally would have, and then just step in and take over the loans and mortgages for these companies? That would be a HUGE difference between what is now happening. Instead these, and other companies would then realize that they can't make stupid decisions and expect to survive. The government then would be in a position to make a great deal of money. This would happen by the government greatly reducing the percentages on the people's loans and mortgages to acceptable levels that would result in significantly less defaults (which the government was trying to avoid anyway right?) and the government would then be actually MAKING money off of this disaster. Anyone care to tell this 22 year old why this didn't happen?

[Ten*K]

because it is the government who agreed to back Fanny and Freddie, and because it was the Democrats who, when they controlled the Executive office and the Congress, forced laws into being that required banks to make sup-prime loans, but telling them it would "be OK" because the banks would be backed by Fannie and Freddie.

The shit-storm we are just getting the first gust of was set in motion during the Carter administration, brought to an ominous dark sky by the Clinton administration, and coalesced into a Category 5 Thunderturd as a direct result of the efforts of Barrak Obama and his largest campaign contributors/economic advisory board.... all of whom profited greatly from the loans, lawsuits (Obama, as a lawyer for the failed lenders), and the resulting crash.

[Legion_Prime]

Don't worry, this will all fit in perfectly with comrade obamas wealth redistribution schemes.

[Posit]

Interesting take from Ron Paul. He freely blames the private sector, but doesn't mention the root causes: Fannie, Freddie, and the Community Reinvestment Act (as amended). Other than pure politics, its not clear why we want to blame the banks/lenders. IMHO, they only did business. If the Fed government says "I'll guanantee your loans, but only if a percentage are made to those who could not ordinarily qualify", why would they not make the loans? Then, if the Fed comes along (in 1999) and says "lower your standards to qualify for a loan even more", why wouldn't the lenders go along?

The final straw was the 1999 amendment to the CRA. If we want to assess blame, it lies with the Congress and POTUS who passed that amendment. Granted the private sector made huge profits - but profit is what business is about- and the CRA incentivized the banks.

As Paul says: "As usual, Congress has show itself to be reactive rather than proactive. For years, many people have been warning about the housing bubble and the inevitable bust. Congress ignored the impending storm...".
Congress refused to take an active approach in 2004/2005 to slow the impending crisis... so now we have one.