-- Posted Thursday, 11 September 2008 | Digg This Article
| Source: GoldSeek.com
Rick’s Picks
Thursday, September 11, 2008
“Phenomenally accurate forecasts”
Should the Government simply have allowed FannieFreddie to die? That’s the free-market, libertarian point of view, and it was expressed most persuasively in the latest monograph from the Mises Institute, How to Avoid Another Depression. Some might argue that avoiding a depression was exactly what Paulson did when he announced on Friday that the U.S. had seized control of the two mortgage giants. News stories out over the weekend said that he had no choice – that foreign investors were threatening to cut and run if he didn’t do something.
We heard a similar argument yesterday when we sat in on a conference call between editors and promotional writers of a company that publishes a slew of financial newsletters. “We wouldn’t even be having this call if the government hadn’t arranged a bailout,” one of the editors opined. “In fact, we might not even have jobs, the banks might be closed, and the phones might not be working.” Pretty serious stuff, but there’s no denying that the fallout from a laissez-faire approach could have brought an abrupt halt to business in the U.S., as well as stunning changes in the daily routine of millions of Americans.
Op-Ed Ignorance
The trouble is, only a moron or someone writing op-ed in The Wall Street Journal could believe the “rescue” is going to solve anything. Fannie and Freddie are going down, make no mistake, and whatever crisis was coming has merely been postponed. It could also be argued that by stage-managing the demise of the two lenders, the government has all but ensured that their eventual collapse will take more victims with it than if the GSEs had been taken off life support.
As Mises author Mark Thornton notes, a U.S. takeover of FannieFreddie “does not help troubled homeowners or prospective buyers. It does not help homebuilders. Essentially, it hurts all those people because it puts them as taxpayers at risk for several trillion dollars in potential losses. Most commentators think this takeover of Fannie and Freddie was the right thing to do -- unfortunate, but necessary to prevent a financial crisis,” Thornton continues. “This is all wrongheaded. It might delay a financial crisis, but it only makes the overall economic crisis even worse. History has well demonstrated that government intervention only lengthens the economic crisis and increases its overall cost. Just ask the Japanese about their experience.”
Japan’s Hole Card
Indeed, the Japanese would certainly know, since they have been mired in a deflationary bog since the early 1990s. So much for the lessons of history. What is most worrisome about the example of Japan is that their economy has been sagging even though they’ve had an insatiable U.S. consumer to buck up exports. But who will buck up the U.S. economy in its hour of need – especially when our most important export, far and away, is financial “products”?
Had the government not intervened at all, going back to the Bear Stearns deal a few months ago, we would already be in recovery mode, albeit from the deepest imaginable trough. “To be sure,” writes Thornton, “housing would remain in a slump for some time to come, but restorative market forces would already be at work creating the next generation of companies and jobs.” He’s right. We can only begin extricating ourselves from this mess when the government stops pretending it is fix-able with conservatorships, Term Auction Facilities, and other transparent fictions of accounting.
Perhaps one or both of the Presidential candidates will be so bold as to speak the truth about our economic plight. Regardless, he will have to face it squarely come January.
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Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. Rick's Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick's Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2008, Rick Ackerman. All Rights Reserved. www.rickackerman.com
-- Posted Thursday, 11 September 2008 | Digg This Article | Source: GoldSeek.com
