© 2008 by Michael Swickard, Ph.D.
“If they can get you asking the wrong questions, they don’t have to worry about the answers.” – Thomas Pynchon Jr.
A grave crisis in our nation is the proposed congressional bailout making headlines this week. It has the potential to be the proverbial 100-year-flood in our financial markets, taking much of the wealth of our nation and leaving our nation crippled for at least 20 years.
Given the threat level, it would be nice if the partisans would lay down their swords for a few days while keeping our nation’s wealth from evaporating. Alas, that is asking too much.
I have said many times that we must not use political solutions for non-political problems. That is, as Pynchon says, asking the wrong questions.
The first question is not whether our government should make the bailout by just printing more dollars; rather, it is how in the name of all that is holy did we get here? Congress, who has often shown interest in having hearings, seems to have absolutely no interest in the crisis’ origins.
Members of Congress should wonder if their solutions are somehow tied to actions they took previously that led us to this financial crisis. At the very least they should wonder if they might make this crisis even worse with their actions.
But that is not what Congress wants to know. Why not? Because that would show that the crisis started as a political solution to a non-political problem.
A ‘financially fragile’ problem
That problem is one of home ownership for citizens who are financially fragile. It is a great benefit to a community for more of the citizens to own their homes. The problem is the words, “financially fragile,” are political speak for people not being able to afford their houses.
Specifically, banks were not inclined to loan money that was unlikely to be paid back. Enter our government and Clinton Attorney General Janet Reno, who indicated that banks that refused people who were fragile were going to be lawed to a frazzle. It was the opinion of the markets that they could not resist our government’s political solution to a non-political problem. That solution was to give loans to anyone who wanted them.
The banks, from experience, knew they were making bad loans, but were compelled to do so out of fear of being roughed up by the government thugs. They made the loans and sold the paper to other financial institutions who knew they were defective but had to comply with the wishes of our government.
It was not if we were going to have a crash, but when. Our government chartered two financial institutions, Freddie Mac and Fannie Mae. They were charged with getting mortgage lenders to help people get more access to home financing.
The problem was still simple: These fragile people buying houses could not really afford them. Defaults started and then there was the question of keeping the mortgage holders from reclaiming the rightful property, which would put the buyers out on the street. Another political solution was to let the buyers stay in the houses.
Predicatively, at some point (which turns out to be where we are now) we reached the point where an immovable object and irresistible force met. Incredible amounts of wealth are tied to very bad loans. What to do? Letting the markets do their own corrections could destroy much of our nation’s wealth.
Finally, we have the political specter of the politicians not wanting to evict the people from the houses. More so, even if they evict, then there is the “Mother of all housing gluts” where the value of the entire housing market plummets.
Calamities come in threes
People say calamities come in threes. We have extreme financial problems that may become connected to security and energy problems next week. Nothing emboldens our enemies like seeing weakness.
And speaking of government-induced maladies, what about energy?
We are throwing our wealth offshore to the applause of our enemies, both foreign and domestic. A barrel of oil and $100 are financially equal. When we lack oil, we lose our dollars. We are not on the gold standard; we are on the oil standard. Prices are rising because we consume oil rather than produce it. Energy is our lifeblood and we are about to bleed out. We have the ability to be energy independent but not the will politically.
It is up to Congress to fashion non-political solutions to our problems. Given past performance, things will become worse, rather than better. Government will be bigger and our problems will consume us. The media will obscure what is happening for political reasons.
At some point, maybe things will get so bad we throw the weasels out of office. Of course, what we need are non-weasels to elect and a media not in bed with the weasels.
Swickard is a weekly columnist for this site. You can reach him at michael@swickard.com.