Is a $700 Billion Bailout the Answer?

We have a crisis caused by the Federal Reserves artificially created credit bubble and Congressional mandates that Fannie Mae and Freddie Mac make home loans to higher and higher risk borrowers in order to increase home ownership. The “solution” of more artificial credit by the Federal Reserve to not credit worthy companies combined with not allowing bad debt and bad investments to go bad. This “solution” will only intensify the problem and prevent the market from correcting  housing and other assets pricing.

 Credit is available to those who are credit worthy. The credit crunch applies to some large banks or investment firms that can not prove they have the assets to qualify for the loan they need. Those institutions profited from the artificially created bubble by not doing their home work and verifying those who they were loaning money to actually had the assets or income to back up the loan.

 In the president’s address he said, Because Fannie and Freddie were chartered by Congress, many believed they were guaranteed by the government. This allowed Fannie and Freddie to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk. Doesn't that suggest that government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that those who believed they were guaranteed by the government were correct?

Next came the scare tactics that the stock market would drop even more and reduce the value of your retirement account and your home. Left unsaid, is that the bailout and all the money and credit that must be produced out of thin air to fund it will drop the real value of your retirement account and home, because the dollar will decline.

They’re trying the same strategy that government tried during the Great Depression; prop up prices at all costs. Instead of the 1921 strategy when a correction was allowed to occur in the equally devastating downturn of 1921 and the economy recovered in less than a year.

Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued then and are being proposed again today.

Instead of allowing the inevitable correction caused by the recent boom, all means are being used to prevent a correction. Credit expansion has been repeatedly tried without success in this depression.  These attempts to prevent this correction will worsen the severity and duration of the inevitable correction.

The very people who assured that the economy is fundamentally sound and  cheered all these creative mortgages still claim to be the experts who will restore prosperity! Just how wrong, how utterly without a clue, does someone have to be before their expert status is called into question?