Necessary Roughness

I usually have pretty good moments of clarity, sometimes too clear for the comfort of those around me.

But Treasury Secretary Henry Paulson and Federal Reserve Chairman Ben Bernanke have nearly convinced me that I am crazy. My world must be one seriously whacked place to everyone else, because it’s a world where if you’ve incompetently performed your duties, you don’t get rewarded with more duties. Yes, you can cite me the Peter Principle, and frankly I’ve seen it at HAL too. But these are people with MBAs and decades of “business experience,” and the laws of supply and demand applied to fiat, unbacked currency seem to lie right on their optic nerve.

Cash: as we print more money and lower interest rates, the value of each dollar decreases because the money is easier to get. It’s just like air; nobody charges for it yet because decent air is easy to get.

Paulson’s Plan: 215 pages that give the Federal Reserve more power to regulate and “stabilize” the economy, after trashing the dollar to save the banks.

A loan is a risk for both creditor and debtor. Creditors use credit ratings to figure out the chances that their money is coming back to them with interest. Unfortunately, government has stepped in on occasion to either guarantee the loan or punish the creditor for not loaning “enough” to a protected class. The creditor’s mechanism for inhibiting the amount of money loaned out is short-circuited.

Step two: Those loans, made at sub-prime interest rates and with government guarantees and penalties, defaulted. They were, surprisingly enough, risky! The creditors, with no way of getting their money back from the risky debtors they gave their money to, now seek redress from the government. They’re entitled in a way because the government screwed them, but in actuality, they didn’t have to borrow the extra cash.

So now, we have the Democratic plan to “bail out” these creditors (and we’re already in deficit, but that’s another issue) and plunge the dollar further, or we have this Republican plan to reward the Federal Reserve’s incompetency, render meaningless 50 states’ worth of licensing restrictions, and deny the banks a lesson in self-regulation.

All because nobody wants to see the risky debtor get foreclosed out of a home that he may not have been ready to buy yet under unfettered market conditions. While he’s pulling at your heart strings, food, medicine, metals, and other goods and services get more and more expensive. Was keeping that person in a $250,000+ house worth the required increase in prices for the functions of your daily life?

I must be crazy, because people are saying yes. People are trusting the government more and more to solve problems it created in the first place. Whether it is vaccinations, schools, housing, air traffic security, whatever, the government sings its siren song, we get lured in by it, and we cede power to a promise that is rarely met and only serves to create career politicians.