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Old 09-25-2008, 02:49 PM
 
25,165 posts, read 47,356,469 times
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Who is to blame?
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Old 09-25-2008, 04:17 PM
 
Location: Cloud Cuckoo Land
558 posts, read 707,466 times
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Quote:
Originally Posted by artsyguy View Post
Who is to blame?

I don't know for sure what does or doesn't define a depression, or if we're in one, but the answer to the question, "who is to blame for our country's current financial problem?" depends on whom you ask. Here is an answer from Ron Paul:

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

Ron Paul Blog - The Never Ending Campaign for Liberty
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Old 09-25-2008, 08:12 PM
 
25,165 posts, read 47,356,469 times
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Can you dumb that down and summarize that for me .... just say it in English
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Old 09-25-2008, 09:04 PM
 
Location: Orlando, Florida
43,858 posts, read 43,602,201 times
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I agree with Ron Paul, but isn't the American public somewhat to blame? Even if people get a mortgage, they know when they can't really afford it. They know when they get in debt up over their ability to pay off their credit cards or make vehicle installment payments. Do we really expect our government to babysit us financially?
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Old 09-25-2008, 09:20 PM
 
Location: TX and NM on the border of the Great Southwest.
11,810 posts, read 15,826,913 times
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Quote:
Originally Posted by GloryB View Post
I agree with Ron Paul, but isn't the American public somewhat to blame? Even if people get a mortgage, they know when they can't really afford it. They know when they get in debt up over their ability to pay off their credit cards or make vehicle installment payments. Do we really expect our government to babysit us financially?
You are absolutely right. Just two blocks up the street is a $40/$50,000 Dodge sitting in front of a $25,000 house. The average income in this small west Texas town is only $30,000 so I doubt this guy has the salary that supports his car notes. Every American knows someone like this.
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Old 09-25-2008, 09:28 PM
f_m
 
2,289 posts, read 7,371,846 times
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Quote:
Originally Posted by GloryB View Post
I agree with Ron Paul, but isn't the American public somewhat to blame? Even if people get a mortgage, they know when they can't really afford it. They know when they get in debt up over their ability to pay off their credit cards or make vehicle installment payments. Do we really expect our government to babysit us financially?
Yes, it happened on both sides. The loan "givers" gave loans without caring if they could be payed back, since they make money on the loan transaction (along with realtors, etc...). The person who took the loan probably didn't know what they were doing, but agreed to the loan anyway.
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Old 09-25-2008, 11:04 PM
 
Location: Heartland Florida
9,324 posts, read 23,259,690 times
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The blame is on the Federal Reserve and the banking cartel. If a business like a bank or building and loan were not careful who they loaned to, it is their fault. However, the fed's fraudulent fractional reserve banking has been the root of all economic bubbles and busts.
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Old 09-26-2008, 07:54 AM
 
Location: Ohio
18,072 posts, read 13,275,864 times
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Quote:
Originally Posted by artsyguy View Post
Who is to blame?
Maybe the food you eat? Lack of exercise? Hard to tell.
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Old 09-26-2008, 08:05 AM
 
Location: Montrose, CA
3,031 posts, read 7,873,408 times
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The greedy consumer is ultimately responsible for this mess. Those of you who signed crazy ARMs or got idiotic interest-only loans on houses you couldn't by any stretch of the imagination afford. Those of you who grabbed all the equity out of your home when the market was at its peak, and bought "toys" with it. Those of you walking away from your houses even though you have the means to pay, because you don't like being upside down. Yes, it's you dummies that are responsible. Sure the banks gave you stupid loans...but nobody put a gun to your head and forced you to sign.

Thanks for nothing!
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Old 09-26-2008, 09:22 AM
 
19,183 posts, read 27,763,990 times
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Quote:
Originally Posted by SuSuSushi View Post
The greedy consumer is ultimately responsible for this mess. Those of you who signed crazy ARMs or got idiotic interest-only loans on houses you couldn't by any stretch of the imagination afford.
Another right-winger in denial? This mess is brought to you lock, stock, and barrel by the party of laissez-faire free-market capitalism -- the people who like to do away with bureaucratic red tape and unleash the great engine of the American economy. Let the boys do whatever they want. Don't peek over their shoulders, and if you do see something that seems out of whack, for God's sake don't do anything about it. That's how we got to where we are today.

Consumers don't have crystal balls. They can't tell what the fallout from every misguided Bushie economic policy is going to be five years down the road. Keep in mind that these borrowers you so despise for their hard work and faith in the American Dream could indeed afford those loans when they were originated, and they could afford them again with but a modicum of debt restructuring -- the same thing we've been extending to foreign governments with debt service problems for decades. All you want to do is point a finger at the other guy and walk away from the problem. There is a larger lesson to be learned here, and you don't want to learn it. It's the same lesson that was learned in the hard times of the Depression and in the good times of the post-WWII era. Now it's the turn of some assorted history-ignorers to learn it, and here it is: Laissez-faire free-market capitalism doesn't work. It never has worked and it never will. The only way to sustain a market economy on a long-run basis is under a regime of managed capitalism...i.e., what extremists call "socialism". That's all that works. Get used to it, and maybe start showing some actual Personal Responsibility® by manning-up and placing the blame where it actually belongs. Greedy consumers, my foot...
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