Ron Paul stands firm against Wall Street Bailout
September 24th, 2008 by Brendan SteinhauserConservative House Republican Ron Paul has a good piece up on CNN.com about the massive Wall St. Bailout plan being debated in Congress. He points out that government intervention is what got us into this mess.
Unfortunately, the government’s preferred solution to the crisis is the very thing that got us into this mess in the first place: government intervention.
Paul then describes how meddling in the housing market leads to distortions in that market. And he points out that the market must be allowed to adjust itself naturally, according to supply and demand.
This lowering of prices brings the economy back into balance, equalizing supply and demand. This economic adjustment means, however that there are some winners — in this case, those who can again find affordable housing without the need for creative mortgage products, and some losers — builders and other sectors connected to real estate that suffer setbacks.
The government doesn’t like this, however, and undertakes measures to keep prices artificially inflated. This was why the Great Depression was as long and drawn out in this country as it was.
This trend happens all the time: Government helps create a problem by meddling in the market; Then government tries to “fix” the problem in the market, making it worse; Finally, government makes new laws and rules that prolong the problem in the market and lead to new problems.
This cycle continues and only adds to more complexity, more regulations, less economic efficiency and then massive bailouts of entire sectors of the economy.
These are scary times, where a Republican administration and a Democrat Congress are working together to move us toward the road to serfdom. What’s next? Will they nationalize the entire banking industry in this country? I’m afraid to know the answer to that.
September 24th, 2008 at 11:19 am
Ron Paul is correct. The root cause of the financial breakdown is Fed manipulation of money & credit, guaranteeing an asset bubble. The bubble appeared in real estate and mortgage backed securities largely because of additional govt meddling, but the Fed control of money supply is necessary for the bubble to occur at all. Both political parties have supported the Fed’s funny money game, and both parties have supported the wild deficit spending and entitlements that require such. No one seems to be proposing an end to Fed credit expansion, save Ron Paul.
I just heard Nouriel Roubini (hardly a right winger!) make this point this morning; unless credit ultimately shrinks, we have the ingredients for the next bubble.
September 24th, 2008 at 12:19 pm
ALthough I too do not support any bailout, you guys are flat wrong that this is the result of government meddling. In fact, it’s the opposite.
Ron Paul rightly points out the problems with the Community Reinvestment Act (not quoted in your post) and its role in helping create the subprime mess. But what he doesn’t say is that none of those subprime loans under CRA could be securitized (that is, repackaged as mortgage-backed securities). When the Clinton administration expanded the reach of the CRA in the mid-1990’s, they had to exact a price from the free-marketers in Congress led by Gingrich, Gramm, and Dick Armey. Sure, the program could expand, they said, but only if those risky CRA loans could be securitized and sold.
Bear Stearns was the first company to offer mortgage-backed securities in 1997. All the pieces were in place now for the financial disaster we’re seeing today. All that was required was a housing bubble. When that began after the 2000 election, several companies went to the SEC to demand further deregulation of credit markets. In the end, five large banks received permission from the SEC to carry debt-to-capital ratios on their books far exceeding the regulatory limit. This would allow their portfolios to increase astronomically in value as housing prices escalated. These five companies were Bear Stearns, Merrill Lynch, Lehman Bros., Goldman Sachs, and Morgan Stanley. Sound familiar?
All this occurred, of course, under the watch of a Republican Congress and Republican administration, though Clinton doesn’t get off scott-free here. The bottom line, though, is that if CRA loans had stayed unsecuritized, none of this would have happened at all, and the housing market would’ve worked pretty well. That’s a direct result of deregulation.
September 24th, 2008 at 12:54 pm
I don’t believe you’re quite right, Sickle; CRA provided *pressure* for subprime lending as well as permitting securitization, so too did DoJ, Fed etc. Regulatory arbitrage, or whatever you want to call it, is also important
But this explains “why housing” not “why bubble.” Put it this way, Fed policy was a necessary not sufficient condition for the bubble; why housing instead of something else, is an additional story.
And don’t take what I’m saying as a defense of Republicans, or their tendency to turn a blind eye to shady accounting and fraudulent lending.
September 24th, 2008 at 4:06 pm
The bottom line is that in a free market, there would be no concentrations of power large enough to destroy the market, and there would be no risk of being forced to pay for mistakes you did not make.
In our over-regulated, fiat-money-crazed, semi-fascist, semi-socialist psuedo market, of course, anything is possible. Anything, of course, except defying the laws of economics without creating a disaster. The government caused the problem, the government can’t fix the problem. The government should get out of the way and let people produce they things they need to survive. But they won’t.
This may well end in bloodshed.
September 24th, 2008 at 4:22 pm
Are you effing crazy? The evidence suggests quite the opposite.
Just to correct one thing, permitting securitization was NOT part of the original CRA. It was added later.
And your points are well-taken. I wasn’t trying to say that CRA’s were the only cause. Rather I was just adding to Ron Paul’s point about them and fleshing out some additional facts. But keep in mind that the fed, DOJ, etc. aren’t operating in a vacuum. They made moves they did based on feedback from executives in the markets they regulated. Yes, the Bush administration should rightly take a lot of lumps here, but we have to remember that they took their actions based on advice from the very industries that caused this mess. Just one year ago, Bernanke said:
That’s a statement addressing concerns that there wasn’t enough oversight in the debt markets, and it’s basically a parrot of what banking industry executives were saying to the fed for years. This isn’t just an issue of “government is bad”, which is what the free-marketers would have us believe. It’s that the government is listening to the wrong people, trusting folks with a direct financial incentive to lie about the effects of deregulating certain markets. As far back as 2006, noted economists were already warning about the credit derivative scam:
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=929747
As for why housing? Bubbles appear in the economy all the time (the oil prices spike is the latest) for reasons that are often unclear. But right now the FBI has no fewer than 24 investigations into companies who are suspected of lying about the health of their financials, especially the mortgage-backed securities on their books. If I had to guess, the housing bubble, as it were, begins there somewhere.
September 24th, 2008 at 5:35 pm
NO ONE is out to try and keep housing prices “artificially inflated”, period.
“Will they nationalize the entire banking industry in this country?”
Is that even on the table??
“This may well end in bloodshed.”
Nonsense.
September 25th, 2008 at 9:40 am
The problem is intervention of government. It all started during the Clinton Adminiistration. This is not a wall stree problem. All that wall street did was stop the flow of money. They (wall Street) will not invest in bad investments. The mortagages were given to people who had less than qualifying credit scores. The system works like this. You go to a bank and get a mortgage. Your mortgage and many others are sold to freddie or fannie. Freddie and fannie bundle these mortgages up and sell them to investors. The investor money then goes back to purchase additional mortgages. So when the mortgagees do not repay their mortgages, Wall street will not purchase Mortgage backed securities because they believe them to be worthless. I am not sure if the bail out is good or not but I do know it needs to be fixed. I believe the democrates meddled with this good system and now it’s broken. It is not a wall street bailout. Its a bailout of the banks so the fow of money will continue. This is how our country has become strong. President Bush was very correct in his speech on Sept. 24, 2008.
I do believe the American people are totally confused about the workings of this mortgage systemand this is why they are so much against the bailout. What I am sure of is it needs to be fixed and once it is fixed, the government should stay out of the market. Senator Obama is totally wrong. It is not wall streets fault.
Iwill not divulge how I know this, but I will give my name and E-mail address.
September 25th, 2008 at 12:20 pm
FBI Fraud investigations are now up to 26.
September 25th, 2008 at 6:21 pm
Dear Senator/Congressman, you are making a huge mistake…
…if you let this $700 billion bailout bill pass.
Remember how you were going to stand up to this administration?
Remember how you said “No blank check for this President!”?
What has happened to that?
The Paulsons and Bernankes in this scam are nothing but the Cheneys and Wolfowitzes of the Iraq war.
Remember how congressmen/-women and senators regret their votes on the Iraq bill? You must have thought to yourself back then “How could they??”. Now you are about to do the same thing!!
These people don’t have the solution to the financial crisis. They have been wrong on EVERYTHING they said. Remember how Paulson said a few weeks ago the banking system is sound? Remember Bush’s endless reassurances that the economy is strong and stable?
WHY LISTEN TO THESE PEOPLE?
Why not sit back for a second and listen to the people who have been talking about this problem for years? How about listening to the people who have been right on everything? The people who saw this coming and who have again and again presented logical solutions. In particular I would like you to take a look at what these two people have been talking about for years, even decades:
- Ron Paul (http://www.campaignforliberty.com/)
- Mike Shedlock (http://globaleconomicanalysis.blogspot.com/)
You have to understand: This bailout plan is MORE OF THE SAME. The cause for the credit crisis is that the federal reserve and government entities Fannie Mae and Freddie Mac have been buying up mortgage backed securities with taxpayer money and/or printed money. It has been fully explained by the theory of credit expansion. THIS BAILOUT BILL SUGGESTS MORE OF THAT. It will no fix the situation, it will aggravate it!
I hope you take at least five minutes to seriously think about what I just wrote.
I am furious. I cannot believe what is going on. Especially since we have had this kind of rush scenario again and again. And every time we asked ourselves afterwards: “How could they approve THAT?”
Sincerely,
Nima Mahdjour
September 25th, 2008 at 10:46 pm
The economy is not going to collapse. The world is not going to finish. Stop the bailout. Nationalize the banks and Wall street. Prosecute the corruption and fraud from Wall Street, Banks, Mortgage Brokers and Real Estate brokers, Fannie, Freddy. Take the illegal money earn, clean the books from the banks and Wall Street and Sell the banks again. In Mexico, The corruption cause the economic crisis and the nationalization of banks cleared the way to pay the debt 4 years before planned. Freedom and Democracy do Not protect corruption and fraud.
September 26th, 2008 at 11:26 am
And just so everyone’s clear, I think we ALL here, regardless of our political stripes, oppose this bailout. I, for one, can’t figure out why this is so necessary. A guy on DailyKos, of all places, put this pretty well:
I gotta confess, I’m not seeing it either…
September 26th, 2008 at 2:11 pm
I am an independent and I am for the “bailout” ASAP. What I am opposed to are the things that led us to this point. We can monday morning quarterback the past till the cows come home, but we need to get our heads out of our ___s and ensure it doesn’t happen again, anytime soon. Let us learn from our mistakes but not over legislate. Easy to say.
If we ALL just put our heads down and kept working, eating and sleeping would there be another depression. Probably not. The problem is that runs on banks are not based on reality (hard facts about financial stability) but perception of reality. Look at WaMu, which was made nearly insolvent becasue companies were rearranging bank accounts to remain under the $100,000 FDIC threshold. So compound that with enough Johnny Lunchpails deciding to withdrawal all of their money so that they have access to it incase their ATM card won’t work. Catastrophic!!
September 26th, 2008 at 2:44 pm
Note that DailyKos couldn’t help the partisan sniping either. “Bush-Paulson-McCain” plan? I know McCain and Palin have both flatly stated that a bailout was necessary, but McCain hadn’t even read Paulson’s plan before the WH meeting yesterday.
At the same time, though, Matt Kibbe is talking on the FW home page as though the Democrats wanted to approve Paulson’s plan as-is. That’s a lie as well, since the Dems declared the Paulson plan DOA pretty much immediately.
September 26th, 2008 at 6:00 pm
“It all started during the Clinton Adminiistration.”
No, it didn’t…it started when the culture of deregulation and let “the markets” be free mentality came to Washington, D.C. a loooong time ago.
“The mortagages were given to people who had less than qualifying credit scores.”
And the federal govt. forced leaning institutions to do that?? I think not. “Mortgage backed securities” should have never been allowed to exist in the first place!
“Iwill not divulge how I know this”
Thanks for blowing the lid off absolutely nothing.
“Nationalize the banks and Wall street.”
That’s NOT a bailout as well??
“I think we ALL here, regardless of our political stripes, oppose this bailout.”
Don’t count me in your little group Sickle…something needs to be done here & it appears to me that the federal govt. is the only entity with enough money (borrowed of course) to do it.
“Then the real outlay for taxpayers would be around $175 billion.”
That’s exactly what I heard Barney Frank say the other day about the $700 billion number being floated around now. Just look at the AIG deal…you’d have to be a complete baffoon to not be able to make money on that deal if you are the federal govt., and yea…I know we have some pretty stupid people at the top right now…but that’s going to change though soon.
“If we ALL just put our heads down and kept working, eating and sleeping would there be another depression.”
With no credit to pay for anything (like your paycheck)?? I think you need to re-check your line of thinking.
“I know McCain and Palin have both flatly stated that a bailout was necessary, but McCain hadn’t even read Paulson’s plan before the WH meeting yesterday.”
Come on Sickle…you’re better than that. McSame said that he got the Bush-Paulson 3-PAGE plan days & days ago and he never read it?? Come on now…McSame ran back to Washington, in basically his own words, because he thought that the Bush plan was DOA in Congress (as you say yourself above). McSame is just carrying water for Bush…just like usual.
September 26th, 2008 at 8:40 pm
The problem is not politcal affiliation, come on guys, not necessary. The problem in oour courty is greed. Lobbyists have infiltrated both parties and all levels of government, effectivly removing any regulation from a bunch of guys with questionalble morality; stock market wheenies.
Now our Government is proposing a $700 billion dollar bailout for the turds who put us in this position to begin with! You can bet that they still drive their BMW’s and vacatioon in cabo eevry year.
If you pay your mortgate and your taxes, you are a sucker because fat cat wall street banker has a fleet of tax guys making shure he don’t pay a penny!
They will probably write off all this speculative debt as a giant, loss, collect the government check and buy another house in tha carribiean.
Meanwhile, the US dollar tanks because of the crushing nationl debt and makes your dollar work less. The inevitable consequence is double digit inflation and higer taxes.
Partisan politics be dammed! Both parties are spewwing the same old swill with no real solutions offered.
Good luck
September 27th, 2008 at 5:59 pm
i too oppose this bailout,,in the last few days ,i have sent over a thousand e mails to senators and congressmen ,stateing my opposion..now they have that ACORN thing in there..there is only one way to fix this problem..all people that have been in congress and senate for more than 2 terms, must be voted out of office,then we make a few rule changes,,,NO EARMARKS,,NO ADMINMENTS,NO BLOCKING BILLS FROM BEING VOTED ON,
ONLY 2 FOUR YEAR TERMS AND YOU GO HOME..NO PRO-POLITICIANS, WE ELECT PROVEN BUSSINESS PEOPLE.
September 28th, 2008 at 9:10 am
i dont know why people go to college and study “created accounting..all it does is get them into trouble…all you need to know is…2+2=4 and 4-4=0..and it will always be …o…if you try to make it come out any other way,you are headed for a disaster…when people learn to ‘live within their means’ like most of us do..you wont have any problems. I dont have a credit card, I have never had a credit card,I dont need a credit card.and I dont want a credit card,,.the american people owe ‘1 TRILLION DOLLARS in credit card debt,,if they cant pay their mortgage how in the hell are they going to pay this debt.???? .I dont know how BARNEY FRANK, CHRIS DODD AND BARACK OBAMA think THAT LOW INCOME PEOPLE CAN AFFORD TO LIVE IN A 300 THOUSAND DOLLARD HOME with an adjustabe rate mortgage….i live in a 10 thousand dollar camper trailer..at a fish camp,on a river..because thats what i can “afford” … yes,,the people that ‘encouraged’ these loans and the people that ‘issued’ these loans and the people that ’signed’ these loans… should be HELD ACCOUNTABLE.. not me
September 28th, 2008 at 12:42 pm
I just heard on Cspan that Nancy Pelosi declared martial law in the middle of the night in the house.
September 28th, 2008 at 1:07 pm
As a loan officer and then mortgage broker, I saw every loan officer putting people into ARM’s (say 6% starting that can go to 11% max), even though they qualified for fixed rate mortgages (same loan at 6.125% for 30 years).
Why? Because the lenders gave us twice as much money on the backend, that is the half the money we were paid for doing a mortgage came from the points on the loan paid by the borrower, with additional money coming from the lender.
My check for the ARM loan would be $1500, whereas the Fixed Rate would be $600 for the same loan. Needing food on your table, which loan would you push?
Thankfully, I never did anything to destroy families. The lenders (pushing ARMs) and mortgage brokers (not allowing loan officers to sell Fixed Rates) should be held accountable.
September 28th, 2008 at 2:32 pm
The banks & Wall Street are responsible for this mess. The banks make the loans from “borrowed money” (line of credit) then sell that note to Fannie & freddie who pays them back their “borrowed money”. They retain servicing to collect a fee to collect payments from borrowers. They are collecting profit from money that wasn’t theirs to begin with. Fannie & Freddie package and sell to Wall Street that BORROWED against the MBS leveraged 30-1. What did they do with this borrowed money? Didn’t all these companies get money from the stockholders? Where did that money go? Where did the 30-1 borrowed money go from the companies that went under? How much money hve all these companies and banks collected in stockholder investment in their companies? Why was the stockholder not allowed to intervene, yet JP Morgan could “come to the rescue at a huge discount? Looks like a power grab to me of a handful of companies to gain control of our financial system. I say everyone should revolt, fire the Federal Reserve and issue our own currency interest free. Clean out the government and staqrt over!
September 28th, 2008 at 5:45 pm
Heirs of Liberty are against the bailout. We are against the Congress bailing out Wall Street. We are for term limits and asking that Congress limit each bill to one law without a lot of extra additions riding on the bill.
If you are interested in the things that we are, please join us at http://www.heirsofliberty.org and help save America - the country that we love.
September 28th, 2008 at 8:51 pm
It’s nice that Ron Paul’s views are mentioned on this site.
I suppose he is one of the House Republicans who are putting up their own offering at $350 Billion now, with a lot of gingerbread put on it. Maybe not.
In any event, I think it would be nice to mention a candidate for president who is, I believe, in favor of all the views supported herein, Bob Barr.
Ron Paul can only do so much as one of 435 congresspersons.
At least give a mention to Bob Barr. We might not get him elected, but a good voter turnout would send a powerful message, along with turning out some of the incumbents in the Congress in November.
September 29th, 2008 at 8:39 am
Anyone here saying that they don’t oppose this bailout, or are for it, simply do not understand the implications. Regardless of implementation or oversight, the Fed would still need to print up $700 billion to cover the cost of these sales; more easy money for an economy already addicted to credit, laden down with debt. This is the financial equivalent of hooking up a crack addict with a quick fix and expecting them to go away. In financial terms, printing up that much would devalue the dollar. There’s also a section (128) written into the draft proposal that allows the Fed to allow banks a 0% reserve (check this section and the acts it refers to); this has the effect of creating an infinite -and worthless - money supply. At very least, people need to understand that they must stand together on this as Americans regardless of party. This proposal takes all the risk that the banks assumed by putting out these products and sticks it on the taxpayers shoulders while at the same time paying the bill out of their pocket, and raising the national debt. If you want to support the bailout, be aware that you, your kids and grandkids would be paying off a debt raised by corrupt bankers and irresponsible lenders. STOP THE BAILOUT NOW, AND ABOLISH THE FED.
September 29th, 2008 at 10:51 am
Sold down the river, that’s how it is. If 98% of the response to Congress has been against the bailout, (as one source claims) then all we can do is sit back and watch… the coming of the next depression. No taxation without representation? That is just a fiction of the history books. And yes I do think the rise of a mililtary dictorship, meaning bloodshed, is possible in this country.
September 29th, 2008 at 11:17 am
The second part of section 111 of the” Emergency Economic Stabilization Act of 2008″ contains a loop whole which enables executives and political mischief. It doesn’t require much imagination for a vast amount of executives to find a way to qualify for their piece of our pie thanks to the sincere creativity of our representatives closed door meetings.
September 29th, 2008 at 12:50 pm
Listen to leading economists here and around the world. This Wall Street bailout is absolutely folly and the same old stop-gap that won’t solve anything! To allow Wall Street to weed out the most egregious of the failed should be the cry of a free market system. This has happened before. To take this worthless debt upon the backs of taxpayers is nothing more than a Ponzi scheme. We do not need Pyramid schemes to shift their bad debt upon us. They need to be accountable for what they have done. Their needs to be full investigation into this mess and accountability, not scape-goating of American taxpayers once again. Recent bailouts should be telling Congress this won’t be a solution.
September 29th, 2008 at 9:15 pm
“NO ADMINMENTS,NO BLOCKING BILLS FROM BEING VOTED ON”
No democracy eh? No thanks there…
“with an adjustabe rate mortgage”
The Dems weren’t pushing ARMs…the GOP and their ally in the former Fed chairman were, period.
“I just heard on Cspan that Nancy Pelosi declared martial law in the middle of the night in the house.”
Crazy talk.
“I saw every loan officer putting people into ARM’s (say 6% starting that can go to 11% max), even though they qualified for fixed rate mortgages (same loan at 6.125% for 30 years).”
Exactly…according the Wall Street Journal of all places, in 2006, 61% of all borrowers receiving subprime loans had credit scores high enough to qualify for prime conventional loans.
“fire the Federal Reserve and issue our own currency interest free”
More crazy talk.
“the Fed would still need to print up $700 billion to cover the cost of these sales”
Congress just passed a “defense” bill that costs some $615 billion…wake up people…there’s almost no way that the taxpayer will be on the hook for the entire, proposed $700 billion rescue plan, period end of story. The amount of financial ignorance in this country is staggering…
September 30th, 2008 at 11:28 am
American was founded by leaders who refused to allow the rich and powerful to threaten the average person into paying for the spending mistakes of the rich and powerful.
The rich and powerful threatened the founders of America with more than just job cuts and the loss of credit. The leaders who founded this country knew that opposing the rich and powerful and refusing to bail them out of their spending mistakes could cost the average person in America their livelihood, their homes, and even their lives.
The American people who have not forgotten their heritage and refuse to be blackmailed into bailing out the rich and powerful are telling Congress to vote no to the bail out of Wall Street.
The leaders of today who are rushing to find a way to give the rich and powerful the money that they have threatened the average American to get are not following the bold example set by this Nation’s founding fathers in standing up to this type of intimidation.
If the leaders that founded our country had been fearful of a few people loosing their jobs or their homes would America exists today?
The American people do not want leaders who will merely try to protect them from threats; the American people want leaders who will fight for them when they are threatened.
So lets shout hooray for the Republicans and Democrats that stoold up against blackmail and are willing to go back and take their time to figure out how to fight against the threat to the American people!
Nancy Pelosi will have her place in history just like Benedict Arnold!!!!!!
September 30th, 2008 at 7:56 pm
Fight the Wall Street Bailout
This bailout is nothing but bad news. There is no real crisis, the market sell of is a result of fear mongering by President Bush
The bill allows for foreign banks to dump all of their bad assets into American banks, who can in turn sell the debt to the treasury.
THE AMERICAN PEOPLE SHOULD NOT BE PUT ON THE HOOK FOR WALL STREET, AND ESPECIALLY NOT FOR COMMUNIST NATIONS LIKE CHINA!
October 2nd, 2008 at 6:48 am
Actually *read* a history book sometime…seriously…
October 4th, 2008 at 12:32 am
I’ve heard that it is impossible for any one to brake into the federal reserve and rob it. HA HA they just did.
October 4th, 2008 at 1:59 am
I applaud you Geoff Davis of Kentucky for saying “NO” You not only care for Kentucky, you care for all the people of the United States of American. We Kentuckian know we can always count on you.