The following report was supplied to a friend by George Melloan of the Wall Street Opinion Journal. It is long but very interesting. I encourage everyone to read it and feel free to make comments.
Quote
August 2009
The Financial Crisis:
America at a Crossroads
Introduction
America stands at a crossroads.
Will our nation be led down a path where nearly every aspect of our lives—from our education to
our compensation to our health care . . . from our cradles to our graves—will be dictated to us based on
government-imposed limits—a philosophy that believes problems are too large and complicated for
anyone but bureaucrats to solve, and all solutions must be government-managed?
Or will we instead insist on a different direction, where we ourselves as private citizens—rather
than our politicians—direct our nation back to the kind of American optimism and prosperity that every
generation before us worked to create and pass down as a birthright to their children?
America has always been a nation where—so long as individuals were free and the power of
government was limited—there was no problem we could not solve, oftentimes through means never
before conceived. Individual Americans gave us human flight. The government has given us the
Transportation Security Administration. Individual Americans gave us automobiles that are affordable to
all. The government now gives us a federally run auto industry more bent on social engineering than on
meeting consumer demand. Individual Americans gave us cures for a host of once-deadly diseases too
numerous to list. The government wants to give us rationed health care.
Our free and creative countrymen gave us the highest standard of living the Earth has ever known
—a standard of living for the ordinary man and woman that would have been the envy of a king only a
century ago.
We remain capable of solving any problem we face—including our current financial crisis—
without ever-expanding government power. But a return to prosperity will not be achieved—in fact, it
cannot be achieved—through runaway government power and spending. American prosperity will be
found where it has always resided: with individuals who are both free and accountable for their actions.
America reaches the heights of its achievements when our actions match our national philosophy;
we are a nation of limited government and unlimited individual initiative. We create not just computers,
but entire computer industries that improve every aspect of our lives. We create not just enough bread for
our own table, but enough food to feed an otherwise hungry world.
America does stand at a crossroads. The decisions we make in the coming years will dictate
which road we take: one that leads down and is directed by political leaders who believe in dependence
on government, or one that leads up to prosperity that comes from independence and personal freedom.
Section One: Causes of Our Current Financial Crisis
How did we get here?
How did America find itself in a state where our housing prices have soared and then plummeted,
our financial markets are unstable, lending by private institutions has plunged and government has
effectively nationalized huge enterprises to keep them afloat?
Individual private businesses often fail. People make bad choices and their businesses suffer as a
result, sometimes going out of business. But to have a failure of this magnitude requires something more
than bad choices made merely by individual actors; catastrophic failures of this depth and breadth can
come only from the one entity that possesses the power to influence entire industries.
That entity is the government.
Only government policies could have created systemic incentives for irresponsible risk and the
misallocation of resources that led to this financial crisis.
Many have said it was “greed” that drove us here. But greed is nothing new or unique at this time
and place. Greed is a constant human vice that must be checked with the virtue of the Rule of Law and
swift and sure accountability. Greed would have been contained were it not for government policies that
fueled irresponsible risk-taking, triggering in turn the collapse of credit markets.
In the end, as economist Michael Boskin is writing in a forthcoming book, irresponsible private
decisions made by households and firms were enabled and incentivized (and in some cases even coerced)
by government. It was the mutual reinforcing of bad decisions and bad policies that created the mess, but
it was the government’s practices that explain the scope of the crisis.
Federal Reserve’s Role
Much of the credit crisis can be traced back to the monetary policies of the Federal Reserve,
which held interest rates too low for too long, thereby encouraging investors to make investments that
they would not otherwise have made. Fed policies gave the perception of “no risk” for speculative
investments in housing. What’s more, the Fed drifted off its historic mission as an independent institution
setting monetary policy to an institution that picked winners and losers by bailing out firms such as Bear
Stearns and AIG while ignoring others such as Lehman Brothers.
Banking Policies
Some observers have blamed banking “deregulation” as the cause of the housing bubble. But, in
truth, it was mis-regulation, not deregulation, that caused the financial meltdown. In fact, banks are
hyper-regulated, subject to conflicting mandates from different agencies, and banking executives spend
an inordinate amount of time working on regulatory compliance rather than running their concerns.
Regulation, even seemingly benign regulation, can create incentives for harmful conduct. For
example, most Americans have come to trust the Federal Deposit Insurance Corporation; if their bank
fails, they know their deposits in an FDIC-insured institution will be guaranteed up to a certain amount.
But what few realize is that FDIC insurance undermined the incentives of many banks to lend prudently,
because the depositors’ losses were insured by the government. Irresponsible banks used customer
deposits to invest in speculative mortgages that ultimately failed. This is one of many ways the FDIC
encouraged a systemic lack of discipline.
We cannot be ignorant of the moral hazard that inevitably arises when the government reduces
the risk of imprudent investments.
Housing Policies
Owning a home is a great thing. It is a cornerstone of the American Dream.
But not everyone can own a home. And not everyone should own a home. Indeed, many lack the
current financial means to own a home and so they rent an apartment or other accommodation.
Homeownership is not a right; it is a serious responsibility that historically was earned by the would-be
homeowners who scrimped, saved and sacrificed to purchase a home that a lender agreed was within the
buyer’s means. The traditional dream of homeownership encouraged thrift and responsibility both on the
part of the homeowner and the lender, who wrote and held the mortgage, earning a modest but relatively
secure profit for the life of the loan.
But in the 1990s, the government began pressuring mortgage lenders to expand homeownership,
specifically among the poor. Fannie Mae and Freddie Mac—two quasi-governmental agencies that
earned private profits from debt widely believed by the market to have government backing despite
official disclaimers—began purchasing and securitizing mortgages issued to individuals who never before
could have qualified for such credit. The government encouraged Fannie and Freddie to create a
secondary market in high risk, inadequately collateralized mortgages.
Blinded by the prospect of owning a larger, more expensive home than they could afford, high-
risk borrowers rushed in hoping to secure a place of their own with little or no equity. Others desired to
buy and “flip” for big profits. This feeding frenzy relied on the unlikely prospect of ever-rising real estate
values. Fannie and Freddie offered implicit taxpayer guarantees while making major financial
contributions to their politician-supporters. Many of these same politicians ratcheted up the pressure on
lending institutions to fund more “affordable housing.” Fannie and Freddie drove most private lenders
out of mortgage markets through their competitive advantages as government-sponsored entities while
others who sought to stay in the game, matched Fannie and Freddie’s irresponsible actions.
Then the housing bubble burst.
There were simply too many houses in the wrong places owned by people who could not afford
them. Americans (and foreign investors) overinvested their resources into housing, by as much as $800
billion according to some estimates. Rather than promote responsible lending, government policies
created perverse incentives that perpetuated the housing bubble.
In a free market, Fannie and Freddie would never have existed. They are a construct of the
government. And when they failed, these enterprises left enormous debt for every dollar in assets they
held, leaving American taxpayers with “toxic assets.” Fannie and Freddie and the politicians who urged
them on are primary causes of our nation’s housing and financial problems. By implicitly guaranteeing
debt obligations, the government encouraged irresponsible risk-taking at great public expense.
The Fannie and Freddie debacle illustrates how markets respond to perverse incentives. Pious
words about home ownership and publicly funded credit subsidies do not create home ownership for all.
They create unsustainable risks—especially when irrational regulations make it possible for opportunistic
financial actors to make a profit selling $300,000 homes to families with $40,000 incomes.
Fannie and Freddie transformed one of the surest and most stable forms of investment—home
mortgage lending—from a core private banking business into a disreputable casino. How long will it take
the reputation of the mortgage industry to recover?
Originate & Sell
Throughout the early 2000s, investors around the world, flush with cash, sought out seemingly
low-risk investments that promised a nice return. American mortgage-backed securities historically
provided just such an investment. By this time, however, many mortgage sellers had lowered their
standards so far that many borrowers no longer had to provide proof of income or assets. Whereas
mortgage brokers traditionally tightly screened borrowers—because the lenders would “originate and
hold” that mortgage until it was paid off, thereby earning a steady income over the life of the loan—the
new breed of government-enabled mortgage brokers went for broke, writing risky loans and then selling
them as safe mortgage-backed securities to Wall Street, which likewise sold the securities as safe
investments to buyers around the world. The new model was “originate and sell.”
This phenomenon was duplicated across a variety of lending contexts, including credit cards,
student loans and car loans. By keeping credit artificially low, the government incentivized the creation
of increasingly arcane derivatives. Low credit fueled a boom in retail consumption analogous to the one
in housing. In fact, exporters such as China pursued economic policies that suppressed domestic
consumption then used excess dollars from the trade surplus for more lending to America.
In effect, excessive credit and opaque derivatives, fed by capital inflows from America’s major
trading partners, created an artificial boom in American consumption and a similar boom in other nations’
production. The bill eventually had to come due.
Credit Rating Agencies
One of the principal reasons mortgage brokers could sell high-risk mortgages as if they were safe
investments was the negligence of credit rating agencies: Standard & Poor’s, Fitch and Moody’s. These
agencies rate investments, with the safest investments earning a letter grade of AAA. Inexplicably, most
mortgage-backed securities received the highest rating. Rather than assess the current risks of these
securities based on their lower standards of lending, the rating agencies looked instead at historical data
showing low default rates.
Further, the credit rating agencies were conflicted because of fees paid to them by the very
entities they rated. Just four months before AIG’s collapse, for example, all three credit rating agencies
gave the company’s debt a high-grade rating. As The Wall Street Journal recently editorialized, “Without
the ratings agency seal of approval—required by SEC, Federal Reserve and state regulation for many
institutional investors—it would have been nearly impossible to market the structured financial products
at the heart of the crisis.” Likewise, Lehman Brothers received high ratings on its long-term debt only
months before its collapse.
Bubble Bursts & Credit Freezes
Starting in 2006, as home prices began to fall, more and more people began defaulting on their
mortgages, more homes flooded the market, and the inflated value of real estate assets held by financial
institutions—which provided an important means of providing new loans—evaporated. Non-liquid real
estate assets and complicated credit products of questionable value choked the financial industry and
ground lending to a halt. Adding to the problem, the Financial Account Standards Board, effectively
nationalized by the Sarbanes-Oxley Law in 2002, had established “mark-to-market” rules required banks
to value assets as if they had to be sold that very day, even if a bank planned to hold the asset indefinitely.
Because there was no immediate demand for some assets—such as inadequately collateralized mortgages
and mortgage-backed securities—valuations plummeted. And because the value of those so-called toxic
assets impacted reserves required for lending, mark-to-market rules exacerbated the credit crunch and
prompted bankruptcies along with massive taxpayer-funded bailouts. This rule also fails to consider
gains (such as bank retail deposits) and is a major cause of systematic liquidity problems.
Section Two: The Response of the Bush and Obama Administrations
With frightening rhetoric, like “too big to fail,” massive government programs are being forced
on Americans who led fiscally responsible lives and who wish the government followed their example.
In truth and in the long run, the proposed solutions offered by the Bush and Obama administrations will,
if left unchecked, create even greater problems than the problems they seek to solve. They demonstrate
economic illiteracy and a disturbing disregard for constitutional limits on government power.
Lost in all the often self-serving language of politicians and those seeking bailouts is a
fundamental misunderstanding of capitalism—the system that built this nation and, until the laws of
economics are repealed, holds the surest means of restoring long-term economic growth.
Capitalism works not only because it rewards success, but also because it punishes bad decisions.
Prosperity arises out of that dual system of rewards and punishment. Layoffs, for example, are terrible
for the people who suffer them, but, for the long-term economic growth of our nation, they are a
necessary part of capitalism’s self-correcting process. Labor and capital is then allocated to more
efficient, more effective, more successful enterprises that employ more people, provide better products
and services, and grow the economy. Protecting our economy from the consequences of bad decisions by
bailing out companies in an effort to save jobs is exactly the wrong thing for the government to do. No
matter how well meaning, no matter how confident the rhetoric, the government simply lacks the wisdom
and information to correctly make decisions directing private enterprise. A task that complex can be
managed properly only by millions of decision makers interacting with each other in a free marketplace.
Perhaps no one summed up this wisdom better than former British Prime Minister Margaret
Thatcher, when she wrote in 2006:
All too often the state is tempted into activities to which it is either ill-suited or which are beyond
its capabilities. Perhaps the greatest of these temptations is government’s desire to concentrate
economic power in its own hands. It begins to believe that it knows how to manage business.
But let me tell you, it doesn’t—as we discovered in Britain in the 1970s when nationalisation and
prices and incomes policy together deprived management of the ability to manage. And when we
came to privatise and deregulate in the 1980s it took some time before these skills returned. A
system of state control can’t be made good merely because it is run by “clever” people who make
the arrogant assertion that they “know best” and that they are serving the “public interest”—an
interest which of course is determined by them. State control is fundamentally bad because it
denies people the power to choose and the opportunity to bear responsibility for their own
actions.
Government-run auto companies, financial companies and health care companies will provide
opportunities for social engineering for those who seek to control rather than to create. If they are
allowed to work their mischief for too long, they will do irreparable harm not only to these industries, but
to our nation.
Over-solving the Problem
How bad is the current economic downturn? Many measures, such as the fall in real gross
domestic product and rise in unemployment, are not remarkably different than comparable measures
during the recessions of 1973-75 or 1981-82. Both of those recessions ended in 16 months or so without
the massive infusions of taxpayer money we are now seeing. The data suggest that the federal
government’s response is far out of proportion to the magnitude of the recession we are now in.
Consider that so many of our problems started with subprime mortgages. According to March
2009 internal estimates by the Federal Reserve Board, there are currently 6.3 million subprime mortgages
across the United States representing 11 percent of the total residential real estate market with a value of
$1.1 trillion. Approximately 897,000 of these loans were in some stage of foreclosure, ranging from
receiving their first notice to concluding the foreclosure.
Now consider that (according to a March 31, 2009, report by Bloomberg) the federal government
committed to spend or loan up to $12,798,000,000,000 to fight the current recession—more than $10
trillion of which will be committed without congressional approval. The $12.798 trillion total equates to
more than $42,000 for each and every American. By contrast, in today’s dollars, America spent under
$3.6 trillion to pay for all of World War II.
And keep this in mind: the massive financial outlays our government officials now seek are not a
one-time expense. They are only the beginning of runaway government spending for years to come.
Unlike old soldiers, government programs rarely die or fade away. Once created, government programs
are virtually eternal. If anyone doubts this, consider the list of programs dealing with public housing,
urban slum clearance, mortgage assistance programs, agriculture and more that were created during the
Great Depression and designed to solve Depression-era problems but are still on the books today. These
are programs passed in the 1930s that American taxpayers continue to pay for 70 years after the Great
Depression.
The $12.798 trillion that the government seeks to spend amounts to $1,000 every second for the
next 405-plus years—60 seconds every minute, 60 minutes every hour, 24 hours every day, 365 days
every year. And the federal government has committed to spending that amount in an improvised and
constantly changing series of programs.
In sum, the history of government tells us at least four things about this eruption of spending: (1)
regulators cannot possibly know the true consequences of this spending; (2) predictions about what the
spending will accomplish will be significantly wrong; (3) there will be tremendous administrative waste
and delay; and (4) the redistribution of unimaginable wealth will occur primarily according to political,
not economic, priorities.
Creating Uncertainty in the Markets: Four Strikes and You’re Out
Respect for the sanctity of contracts is so integral to our national character that it was written into
our Constitution. But starting in the Great Depression, all three branches of government impaired
obligations under private contracts despite constitutional prohibitions. Government’s more recent, and by
any measure, flagrant disrespect for the Rule of Law explains how today’s financial crisis grew far worse
than it should have.
In 1933, Minnesota passed a law the U.S. Supreme Court would later uphold that temporarily
restricted mortgage lenders from foreclosing on properties. Nothing in the Constitution gave either the
state or the U.S. Supreme Court the power to dissolve these valid contracts between borrowers and
lenders. Indeed, to the contrary, the Contracts Clause of the U.S. Constitution reads, “No State shall . . .
pass any . . . law impairing the Obligation of Contracts.” Nevertheless, once the Contracts Clause was
gutted by the Court, such “cram downs”—government-forced changes to mortgage agreements—
continued unchecked and are widely called for even today.
The refusal of any branch of government to protect contract rights when it is politically expedient
to ignore them provides relief to some, but creates uncertainty for lenders. And this uncertainty increases
lender risk. The only two ways for lenders to cope with risk are to turn down loan applicants or to charge
higher interest rates. Thus, while political meddling in contracts never destroyed lending outright and
allows politicians to posture as champions of the people, everyone pays more for lending than they would
in a world of secure contract rights.
The lesson here is one that applies everywhere: there is no such thing as a free lunch. The
government cannot rewrite mortgage contracts (essentially, transfer wealth from lenders to borrowers)
without consequence.
Unpredictable regulation outside the contracts context also creates uncertainty, sometimes to such
a degree that markets cease to function. When the government intervened to save Goldman Sachs but let
Lehman Brothers fail, investors pulled out huge sums of money from the marketplace within hours. The
commercial paper market, which provides the short-term money that makes business happen, evaporated
almost instantaneously. A similar collapse of the commercial paper market occurred just before the stock
market collapse that began the Great Depression.
Fed Chairman Ben Bernanke, whose academic work focused on the causes of the Depression,
engaged in a series of improvised spending measures to unfreeze the commercial paper market. The
premise behind the government’s effort to restore liquidity was that the government had to restore
confidence in the markets. But confidence emanates from the private sector, not from government.
Whatever confidence people have in the markets should be the result of the inherent strength of the
markets themselves, not a belief that the government will intervene whenever the market attempts to
correct excesses, some of which were caused by government itself.
Essentially, what the government said to Minnesota borrowers in the 1930s and to Goldman
Sachs in 2008 was, “Four strikes and you’re out. You get special rules, but we won’t let anyone know
what those rules are in advance or to whom they apply.”
Why would Minnesota lenders participate in a game where the rules can be so arbitrarily and
unpredictably changed against them? The same principle applies to today’s lenders. That’s one of the
reasons today’s credit markets have effectively been frozen. And it helps explain why “liquidity”—the
ability to quickly convert an asset, like a home, into cash without significant price discount—has been
critically curtailed.
“Three strikes and you’re out” is the American standard. That is the rule we were all raised to
appreciate and understand. “Three strikes and you’re out” is the Rule of Law. “Four strikes and you’re
out” is the rule of men who have nearly destroyed confidence in the system.
Delegating Power
Historically, the only people in the federal government who could pass laws were those elected to
serve in the legislature. The Constitution’s framers wrote in the very first section of the very first article
of the Constitution, “All legislative powers herein granted shall be vested in a Congress of the United
States, which shall consist of a Senate and House of Representatives.” Congress was not authorized to
delegate that power to the other branches. And yet it does. The U.S. Supreme Court ruled that Congress
may constitutionally delegate its power if Congress establishes “an intelligible principle to which the
person or body authorized to [act] . . . is directed to conform.” But how seriously does the High Court
take its own words? Since the New Deal, the Supreme Court has not struck down a single statutory
program as an unconstitutional delegation of legislative power to the executive branch.
The most striking example flying in the face of this “non-delegation doctrine” is the “Troubled
Asset Relief Program,” which grants to the Treasury Secretary—a member of the executive branch—
virtually limitless power over $700,000,000,000 to purchase “troubled assets,” such as subprime loans.
This power is unconstrained and unaccountable to the taxpayers, with no clear or coherent guidance from
Congress. The massive piece of legislation supposedly authorizing this historic transfer of money and
power was pushed through in less than a week. Soon after receiving this money and this power, then-
Treasury Secretary Henry Paulsen decided to use the money for another purpose—specifically to buy
nonvoting preferred shares and warrants from the banks. Then the Bush administration used the money to
nationalize the auto industry. Later, the new Treasury Secretary, Timothy Geithner, announced his
intention to use TARP funds to help private investors buy “toxic assets” from banks. These are the
unelected individuals to whom Congress delegated its powers. And while voters can vote out of office
members of Congress who helped create these problems, voters cannot remove appointed members of the
executive branch.
The New York Times reported in January 2009 that, “An overwhelming majority [of bank
executives] saw the [TARP] program as a no-strings-attached windfall that could be used to pay down
debt, acquire other businesses or invest for the future.” Most of the TARP money spent so far has gone to
purchase preferred shares of more than 500 financial institutions. Little went to purchase “troubled
assets.” In other words, the government made an enormous amount of money available to resolve
perceived financial problems, but market actors appropriated the money for their own purposes. When
will the government learn that people will take profits when irrational government regulation provides
opportunities to take profits?
Bowing to Politicians
Time and again in recent months, once-independent business leaders of successful enterprises
have been dragged before congressional committees and forced to show obeisance to the political powers
that be. Frightened of the awesome power of government to hire, fire, tax and harass, these business
leaders—now under the power of the state because they accepted huge sums of government funds—must
be very concerned with the political implications of each and every decision.
The congressional members who demand such obeisance seek to control through fear of the
government and its power. They seek a government with the power to distribute gifts and privileges to
those it favors and take from those that either disagree or refuse to obey. As a result, we now have a
national economy where big auto, big finance and big government are linked and led by politicians. This
is crony capitalism. This unprecedented link between government and business threatens to further
degrade American public life. Political considerations and oversight will undoubtedly misallocate capital
in the once-private sector, slow innovation and drive up debt.
Worse yet, economic interventionism will further a dependency agenda by those in government
who now force people to take government money whether they want it or not. Sixty percent of the public
now pays less than five percent of the income tax. Accordingly, six of ten Americans have a personal
stake in expanding the size and scope of government and its programs because they pay relatively little
for what they receive.
The government will not voluntarily remove itself from the auto, financial services and health
care industries. Yet, politicians and their staffs lack the knowledge, understanding and wisdom to run
such industries. Those who have made a career in these fields should know best what needs to be done to
return them to productive ventures. And if management does not know how to restore profitability,
markets must be free to mete out competitive discipline.
Section Three: Solutions
Government officials claim this recession is something so complex, so daunting and so fearful
that no one should dare peek behind the curtain lest the wizard be disturbed. Too many politicians
believe they know what is best for us. But Americans are rightly skeptical. We know and appreciate
solutions that are based on sound economics and common sense—neither of which, however, is evident in
the solutions we have seen thus far. Americans want solutions that respect our constitutional form of
government. Again, that is not what has been delivered by either the Bush or Obama administrations.
The ordinary Americans who have always worked hard, paid their bills and lived responsible and
lawful lives understand the two visions of America that we now face: the one based on larger
government, greater debt and greater taxes, or the America that pursues sound public policy.
Before us lie important decisions that will dictate our nation’s economic future. We can either
plague future generations of Americans, or leave our nation freer and more prosperous than we found it.
Here are some of the solutions we recommend for our current recession:
Respect the Rule of Law.
Congress must stop delegating its power to the executive branch. All branches of government
must respect and enforce contracts. If we want vibrant capital and credit markets, the stability of
the Rule of Law must replace the haphazardness of the rule of men.
If something is too big to fail, break it up, sell the valuable assets and scrap the rest.
Occasionally, perverse government regulations will have the effect of eliminating competition
and allowing organizations to expand beyond their optimal size. When that happens, competitive
markets must be restored—either by repealing the regulations or dismantling any organization
that, because of systemic repercussions, has become “too big to fail.” That term cannot become a
rallying cry for those who merely want to secure power and insure against losses from risky
investments. As economist Allan Meltzer has said, “Capitalism without risk is like religion
without sin: it doesn’t exist.”
Also, the bankruptcy process for mega-firms like Citi or GM should be true bankruptcy according
to the Rule of Law, not an ad hoc rearrangement of claims based on political expediencies. (If we
relied on a free market system, which is self-correcting and operates by changing prices and
decisions to appropriately allocate limited resources, it would work much better than the
bureaucratic system that embraces favoritism and invests in failing enterprises like GM and Citi.)
End the bailouts.
Bailouts amount to nothing more than a huge gift to Wall Street and others who are favored by
politicians. They fly in the face of the Rule of Law. They should be ended.
In investing, borrowing and lending: you must rely on yourself to trust but verify.
We must perform due diligence when investing rather than rely on the government for
“confidence.” Remember, government guarantees and subsidies got us into this mess. The
government’s job is to protect our rights, not infuse confidence. Government-backed
“confidence” can lead to highly leveraged and risky lending, and, ultimately, financial collapse.
Policies that promote economic growth and individual independence should be favored over
those that encourage dependency on the government.
America needs the engine of capitalism now more than ever—not merely to lift the economy out
of its current doldrums, but also to pay for the enormous unfunded liabilities in Social Security
and Medicare. We simply cannot afford policies that promote and expand dependency on the
government in place of individual responsibility and accountability.
End Fannie Mae and Freddie Mac, and restore private mortgage lending.
If there must be a federal housing policy, it should not be carried out through quasi-governmental
agencies that privatize gains while imposing losses on taxpayers. The Fannie Mae/Freddie Mac
system encourages political deal-making rather than sound fiscal management; they are corrupt
and inefficient vehicles to subsidize housing for the poor and other groups. Like all government
credit organizations, they should be closed. At a minimum, if there are to be subsidies, they
should be put on the budget and publicly voted on. The government has taken over the mortgage
market. If you have a mortgage, it is likely to be guaranteed by Fannie Mae, Freddie Mac or the
Federal Housing Administration. It is time to get the government (and government-guaranteed
institutions) out of the mortgage business. Without government guarantees, responsible risk
assessment would replace reckless lending and excessive leverage.
Reform the Federal Reserve.
At a minimum, the Federal Reserve should return to its traditional independent role of
maintaining the stability in the market value of the dollar. It must also work to reduce inevitable
political influence and pressure. It should remove itself from credit allocation, where it
subsidizes certain kinds of credit, including the direct purchase of mortgage-backed securities. In
addition, the Fed, which is not elected by the taxpayers, should no longer make decisions about
allocating taxpayer resources—as in, for example, the AIG takeover and guarantees to J.P.
Morgan for acquiring Bear Stearns.
Beyond the Financial Melt Down: Another Coming Threat to Prosperity & Freedom
Nationalizing Health Care
The next big battle will be over health care. The program being pursued by Congress and the
administration could be the tipping point into a permanent, European-style welfare state from which it
will be almost impossible to extract ourselves. Americans are as excited about government-rationed
health care as they are about government-made cars. When it comes to health care, like all other
decisions, Americans want personal choice and personal control; they do not want a bureaucrat to make
their health care decisions; they do not want highly skilled and competent medical professionals turned
into government employees; they do not want the rationing of health care that will be inevitable. Creating
such an environment in health care will produce a brain drain from the most innovative health care system
the world has ever known.
The Obama administration’s government-run plan, which will supposedly create a “public”
option competing alongside private insurers, will inevitably lead to a single-payer, government monopoly
on health care. There are only two forms the government-run program could take: either it will be a true
private competitor or it will be government-subsidized. If it were a true private competitor, it would
already exist under private ownership and private management like any other private firm. Obviously, the
only role for a government-run program would be to provide insurance that the private market will not
provide, meaning that this program will have to be constantly subsidized by the taxpayers. Once the so-
called public option grows into a full-blown government entity providing subsidized health care, it will
have become analogous to Fannie Mae and Freddie Mac, which did not “compete” with private mortgage
lenders; they drove them out of the lending business.
Beyond the rightful fiscal concerns of nationalizing health care—doubling the eight percent of
our economy now directed by the government in Medicare and Medicaid, and trying to pay for coverage
of 44 million people while simultaneously cutting taxes on 90 percent of Americans—the fundamental
questions that trouble Americans are questions of competency and control. They know the government
cannot competently do this job, and they do not want to give up control of their health care to bureaucrats.
Conclusion
The American people have always lived by a clear and strong vision of what our country is and
how it should be run. It is time the political class lived up to that vision.
Many national politicians lack a comprehensive view of the impact of their actions, either for
better or for worse. Other politicians simply put their own reelection efforts and desire for power ahead
of the wellbeing of the nation. Their government-first solutions, if realized, will lead us away from
growth, prosperity and innovation and toward the economic stagnation, debt and subjugation that are the
inevitable products of greater and greater government power.
If we give Americans the freedom they need to work—if we limit government’s power and
spending . . . the massive debt it now seeks to saddle us with—we will undoubtedly create solutions
beyond anything now imagined. But if we fail to do that, we are doomed to remain in the current
downturn, becoming subjected to ever more government control of our lives.
Liberty begets prosperity and prosperity is good for liberty.
America will always find new frontiers to face; there is something in the character of our nation
that needs a monumental problem to solve. Nothing is unachievable to those who are free, whose nation
is fiscally sound and whose government is constitutionally limited. No matter how great the challenge,
we have always proven ourselves up to the task. In that respect, the challenges we face today are no
different.
Freedom and accountability are never easy things. To the contrary, they are two of the most
difficult virtues we can seek. But freedom and accountability make for a better life for individuals, their
communities and their nation. America is at a crossroads. Let us choose the path to freedom.
No comments:
Post a Comment