We must remember that governments do not produce anything. Their only resources come from producers in the economy through such means as inflation and taxation. The government has an obligation to be good stewards of these resources. In bailing out failing companies, they are confiscating money from productive members of the economy and giving it to failing ones.
By sustaining companies with obsolete or unsustainable business models, the government prevents their resources from being liquidated and made available to other companies that can put them to better, more productive use. An essential element of a healthy free market, is that both success and failure must be permitted to happen when they are earned. But instead with a bailout, the rewards are reversed - the proceeds from successful entities are given to failing ones. How this is supposed to be good for our economy is beyond me.
Showing posts with label Bailouts. Show all posts
Showing posts with label Bailouts. Show all posts
Friday, December 12, 2008
Wisdom on Bailouts
Ron Paul recently spoke on the subject of bailouts:
Sunday, November 2, 2008
Innocence and Freedom
Consider a recent argument in favor of a housing bailout:
The innocence of a homeowner relative the innocence of an uninvolved taxpayer is arguable. But innocence isn't the key issue pertaining to bailouts. They key issue is personal responsibility, an idea that is closely tied to freedom.
If someone bought an overpriced home, that was their decision, just as if someone decided to invest in beanie babies or NASCAR collector plates, that too is their decision. They, and nobody else, are responsible for the outcome. Forcing that responsibility onto someone else who had no involvement is a most clear violation of the other person's freedom.
Is it sad that people make bad economic choices? Of course. But what is most sad is the idea that anyone thinks it is ok to force the outcome of their bad decisions onto others. In the same way that we would not sentence one man for another man's freely executed crime, we should not burden one man with another man's freely made economic decisions.
As I've shown before, government economic policies such as subsidies, bailouts, stimulus and inflation are counter-productive, but even more important to recognize is that they are also counter to individual freedom.
I know many, many innocent people who just wanted to buy a home...Now the innocent people have houses worth $200,000 less than their 2005 purchase price.
The innocence of a homeowner relative the innocence of an uninvolved taxpayer is arguable. But innocence isn't the key issue pertaining to bailouts. They key issue is personal responsibility, an idea that is closely tied to freedom.
If someone bought an overpriced home, that was their decision, just as if someone decided to invest in beanie babies or NASCAR collector plates, that too is their decision. They, and nobody else, are responsible for the outcome. Forcing that responsibility onto someone else who had no involvement is a most clear violation of the other person's freedom.
Is it sad that people make bad economic choices? Of course. But what is most sad is the idea that anyone thinks it is ok to force the outcome of their bad decisions onto others. In the same way that we would not sentence one man for another man's freely executed crime, we should not burden one man with another man's freely made economic decisions.
As I've shown before, government economic policies such as subsidies, bailouts, stimulus and inflation are counter-productive, but even more important to recognize is that they are also counter to individual freedom.
Freedom to make bad decisions is inherent in the freedom to make good ones. If we are only free to make good decisions, we are not really free.
- Ron Paul
Wednesday, October 29, 2008
Rationalizing Theft
A writer for the NYT recently called for something to be done about housing:
It's interesting that certain parties should be protected from the harm brought on "through no fault of their own", but not others. In case you had trouble understanding this rationalization for a bailout, let me translate:
Wealth needs to be taken from party A (taxpayers) and given to party B (homeowners), because even though party B was foolish the outcome of their foolishness might hurt party C (other homeowners). And while party C might also have been foolish, though clearly not as foolish as party B, both parties are somehow more deserving of party A's wealth than party A itself. Allowing harm to come to parties B or C as a result of their foolishness is somehow worse than harming party A by stealing its wealth.
Since the government has nothing and produces nothing, all it can do is use its powers of coercion to redistribute wealth from one party to another with the hope that this redistribution will bring about the greatest overall benefit for society. This is the reason given for such intrusions, that the end will somehow justify the means. But how is it that the redistribution of capital from economic activities that are succeeding to those which have failed will some how bring about a better outcome? How do failing activities produce more wealth for society than those which are not? Perhaps it is important to look at who the activity is producing wealth for and for whom it is not.
A successful market economy depends on fairness and justice. These aren't just ideas that appeal to us as individuals, they are necessary in order for a market economy to function properly and to its full potential. A market economy that lacks fairness and discipline, where winners and losers are picked by the coercive power of the government, is an economy that disincentives participation, work ethic and innovation. It is the same problem that caused the failure of classical socialism - why work hard when the product of your labor may be taken away and given to someone else?
An economic system which allows for the forceful redistribution of wealth with the thought that it is for our own good, ultimately and ironically, disincentives economic productivity and brings about the very economic harm that it claims to protect us from, subsidizing activities that the economy cannot afford and that consumers do not want, violating freedoms all along the way.
Yes, there were lots of Americans who were not greedy or foolish during the housing bubble, and many resent the idea that their neighbors might get a bailout they don’t deserve. They need to get over themselves. If housing prices keep falling, many millions of additional homeowners will find themselves, through no fault of their own, with underwater mortgages. Besides, foreclosures damage property values for everyone, not just those losing their homes.
It's interesting that certain parties should be protected from the harm brought on "through no fault of their own", but not others. In case you had trouble understanding this rationalization for a bailout, let me translate:
Wealth needs to be taken from party A (taxpayers) and given to party B (homeowners), because even though party B was foolish the outcome of their foolishness might hurt party C (other homeowners). And while party C might also have been foolish, though clearly not as foolish as party B, both parties are somehow more deserving of party A's wealth than party A itself. Allowing harm to come to parties B or C as a result of their foolishness is somehow worse than harming party A by stealing its wealth.
Since the government has nothing and produces nothing, all it can do is use its powers of coercion to redistribute wealth from one party to another with the hope that this redistribution will bring about the greatest overall benefit for society. This is the reason given for such intrusions, that the end will somehow justify the means. But how is it that the redistribution of capital from economic activities that are succeeding to those which have failed will some how bring about a better outcome? How do failing activities produce more wealth for society than those which are not? Perhaps it is important to look at who the activity is producing wealth for and for whom it is not.
A successful market economy depends on fairness and justice. These aren't just ideas that appeal to us as individuals, they are necessary in order for a market economy to function properly and to its full potential. A market economy that lacks fairness and discipline, where winners and losers are picked by the coercive power of the government, is an economy that disincentives participation, work ethic and innovation. It is the same problem that caused the failure of classical socialism - why work hard when the product of your labor may be taken away and given to someone else?
An economic system which allows for the forceful redistribution of wealth with the thought that it is for our own good, ultimately and ironically, disincentives economic productivity and brings about the very economic harm that it claims to protect us from, subsidizing activities that the economy cannot afford and that consumers do not want, violating freedoms all along the way.
Saturday, September 27, 2008
Behind Closed Doors
From Marketwatch:
Freedom is won on the field and lost behind closed doors.
Pelosi said the exact timing of the House vote would depend on the outcome of closed-door meetings currently underway on Capitol Hill.
Freedom is won on the field and lost behind closed doors.
Saturday, September 20, 2008
$700,000,000,000.00
I wonder what $700,000,000,000.00 could buy, you know, if we were to actually put it to some constructive use as opposed to, you know, handing it over to Wall Street.
One can only imagine.
One can only imagine.
Sunday, July 20, 2008
They didn't understand
The great housing crash is rolling on and lately there's a lot of talk about what happens next, the bailouts. There is a strong contingent of support for bailing out homeowners based on the fact that the government has already held no hesitation towards bailing out Wall Street players. So the argument goes, if they can be bailed out, why can't homeowners? A better question might be, why should anyone involved be bailed out?
Gretchen Morgenson at the New York Times was writing about the bailout controversy over the weekend and brought up that point above about Wall Streeters enjoying bailouts while homeowners have not (so far):
This is a common premise coming from the pro-bailout crowd, roughly, that borrowers didn't understand their loans. As the basis for an invasive, socialist, taxpayer funded bailout, it is inadequate. Many homeowners clearly did understand their loans, yet they chose to take a gamble on a home purchase with the idea that their home's value would increase and net them a reward.
So how is it that such gambles should be subsidized by the hard-earned money of others who had no involvement whatsoever?
Gretchen Morgenson at the New York Times was writing about the bailout controversy over the weekend and brought up that point above about Wall Streeters enjoying bailouts while homeowners have not (so far):
Borrowers who are in trouble on their mortgages have seen their government move slowly — or not all — to help them. But banks and the executives who ran them are quickly deemed worthy of taxpayer bailouts.
...
The message in this disconnect couldn’t be clearer. Borrowers should shoulder the consequences of signing loan documents they didn’t understand, but with punishing terms that quickly made the loans unaffordable.
This is a common premise coming from the pro-bailout crowd, roughly, that borrowers didn't understand their loans. As the basis for an invasive, socialist, taxpayer funded bailout, it is inadequate. Many homeowners clearly did understand their loans, yet they chose to take a gamble on a home purchase with the idea that their home's value would increase and net them a reward.
So how is it that such gambles should be subsidized by the hard-earned money of others who had no involvement whatsoever?
Freedom to make bad decisions is inherent in the freedom to make good ones. If we are only free to make good decisions, we are not really free.
- Ron Paul
Thursday, February 28, 2008
The Captain is Drunk
Fannie Mae and Freddie Mac (government subsidized entities, GSEs) are posting billions in losses, facing insolvency, their portfolios are rapidly becoming worth less and less, a government bailout looms on the horizon, and what does the Office of Federal Housing Enterprise Oversight do? They raise loan limits for Fannie and Freddie, remove portfolio caps altogether and ease capital requirements.
As Mish is quick to point out, the mission of the GSEs is to make housing affordable, yet somehow instead of doing this they've been busy the last few years driving up home prices by buying risky loans, the results of which are now being felt by everyone. Now that the bubble has burst, instead of reversing course and getting back to their core mission of affordability, they decide to further support inflated home prices by raising the conforming limit to over $729,000. I defy anyone to explain to me how anything near $729,000 is affordable for the average American.
So, what the hell is going on you ask? Home prices are falling and banks and wall street are suffering greatly as a result. That's it. The mission of the GSEs now is to inflate home prices at all costs, quite a drift from their original mission of promoting affordability. Clearly the GSEs are headed on a course for disaster, but that doesn't matter. After all, what cost is it to them when they file for bankruptcy? The taxpayers will be picking up the bill.
The captain is drunk, the ship is heading for a reef and instead of turning away we're steering straight into disaster. The shipowners have an insurance policy they're hoping to collect on.
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