Ron Paul's New Letter about the Bailout!

Dear Friends:

The financial meltdown the economists of the Austrian School predicted has arrived.

We are in this crisis because of an excess of artificially created credit at the hands of the Federal Reserve System. The solution being proposed? More artificial credit by the Federal Reserve. No liquidation of bad debt and malinvestment is to be allowed. By doing more of the same, we will only continue and intensify the distortions in our economy - all the capital misallocation, all the malinvestment - and prevent the market's attempt to re-establish rational pricing of houses and other assets.

Last night the president addressed the nation about the financial crisis. There is no point in going through his remarks line by line, since I'd only be repeating what I've been saying over and over - not just for the past several days, but for years and even decades.

Still, at least a few observations are necessary.

The president assures us that his administration "is working with Congress to address the root cause behind much of the instability in our markets." Care to take a guess at whether the Federal Reserve and its money creation spree were even mentioned?

We are told that "low interest rates" led to excessive borrowing, but we are not told how these low interest rates came about. They were a deliberate policy of the Federal Reserve. As always, artificially low interest rates distort the market. Entrepreneurs engage in malinvestments - investments that do not make sense in light of current resource availability, that occur in more temporally remote stages of the capital structure than the pattern of consumer demand can support, and that would not have been made at all if the interest rate had been permitted to tell the truth instead of being toyed with by the Fed.

Not a word about any of that, of course, because Americans might then discover how the great wise men in Washington caused this great debacle. Better to keep scapegoating the mortgage industry or "wildcat capitalism" (as if we actually have a pure free market!).

Speaking about Fannie Mae and Freddie Mac, the president said: "Because these companies were chartered by Congress, many believed they were guaranteed by the federal government. This allowed them to borrow enormous sums of money, fuel the market for questionable investments, and put our financial system at risk."

Doesn't that prove the foolishness of chartering Fannie and Freddie in the first place? Doesn't that suggest that maybe, just maybe, government may have contributed to this mess? And of course, by bailing out Fannie and Freddie, hasn't the federal government shown that the "many" who "believed they were guaranteed by the federal government" were in fact correct?

Then come the scare tactics. If we don't give dictatorial powers to the Treasury Secretary "the stock market would drop even more, which would reduce the value of your retirement account. The value of your home could plummet." Left unsaid, naturally, is that with the bailout and all the money and credit that must be produced out of thin air to fund it, the value of your retirement account will drop anyway, because the value of the dollar will suffer a precipitous decline. As for home prices, they are obviously much too high, and supply and demand cannot equilibrate if government insists on propping them up.

It's the same destructive strategy that government tried during the Great Depression: prop up prices at all costs. The Depression went on for over a decade. On the other hand, when liquidation was allowed to occur in the equally devastating downturn of 1921, the economy recovered within less than a year.

The president also tells us that Senators McCain and Obama will join him at the White House today in order to figure out how to get the bipartisan bailout passed. The two senators would do their country much more good if they stayed on the campaign trail debating who the bigger celebrity is, or whatever it is that occupies their attention these days.

F.A. Hayek won the Nobel Prize for showing how central banks' manipulation of interest rates creates the boom-bust cycle with which we are sadly familiar. In 1932, in the depths of the Great Depression, he described the foolish policies being pursued in his day - and which are being proposed, just as destructively, in our own:

Instead of furthering the inevitable liquidation of the maladjustments brought about by the boom during the last three years, all conceivable means have been used to prevent that readjustment from taking place; and one of these means, which has been repeatedly tried though without success, from the earliest to the most recent stages of depression, has been this deliberate policy of credit expansion.

To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about; because we are suffering from a misdirection of production, we want to create further misdirection - a procedure that can only lead to a much more severe crisis as soon as the credit expansion comes to an end... It is probably to this experiment, together with the attempts to prevent liquidation once the crisis had come, that we owe the exceptional severity and duration of the depression.

The only thing we learn from history, I am afraid, is that we do not learn from history.

The very people who have spent the past several years assuring us that the economy is fundamentally sound, and who themselves foolishly cheered the extension of all these novel kinds of mortgages, are the ones who now claim to be the experts who will restore prosperity! Just how spectacularly wrong, how utterly without a clue, does someone have to be before his expert status is called into question?

Oh, and did you notice that the bailout is now being called a "rescue plan"? I guess "bailout" wasn't sitting too well with the American people.

The very people who with somber faces tell us of their deep concern for the spread of democracy around the world are the ones most insistent on forcing a bill through Congress that the American people overwhelmingly oppose. The very fact that some of you seem to think you're supposed to have a voice in all this actually seems to annoy them.

I continue to urge you to contact your representatives and give them a piece of your mind. I myself am doing everything I can to promote the correct point of view on the crisis. Be sure also to educate yourselves on these subjects - the Campaign for Liberty blog is an excellent place to start. Read the posts, ask questions in the comment section, and learn.

H.G. Wells once said that civilization was in a race between education and catastrophe. Let us learn the truth and spread it as far and wide as our circumstances allow. For the truth is the greatest weapon we have.

In liberty,

Ron Paul was our only hope to get this country back in shape and media and ignorance of the American public caused his downfall. How could someone not want to vote for a man that fights for the people of America. This man is wise beyond his years.

I took the time to email my congressman and even he had issues with the bill.


Dear Snift:



Thank you for your correspondence concerning legislation that would allow the Treasury Department to purchase up to $700 billion of bad mortgage assets from the financial services sector.



Like you, I have some serious reservations about the proposal in terns of the costs and the lack of oversight and accountability. I agree that the Congress should not hastily act to bailout sectors of this industry that have acted in an irresponsible fashion. Honest tax paying, bill paying citizens should not be forced to bear the costs of providing a government backed assistance package for those who have simply made poor business decisions. We should not support any proposal that would socialize another key component of the economy.



I appreciate having your views on this matter, and I do not plan on voting for any proposal that recklessly exposes current and future generations of taxpayers without providing financial assurances that their money will be returned. Certainly we are at risk of a financial crisis, but we must have a proposal that stabilizes the market without a blank check bailout of those who have directly created this issue in the first place. As this issue develops in the upcoming days, I will certainly keep you thoughts in mind.



Thanks again for contacting me on issues of importance to you. If you would like additional information on services my office can provide you, my votes and positions on issues facing our nation, and to subscribe to receive periodic "e-newsletters," please visit my website at daviddavis.house.gov...




Sincerely yours,

David Davis
Member of Congress

Interestingly, my representatives (Schumer, Clinton, and Bishop) didn't respond at all. Well, technically, Schumer did, one of those automated 'thanks for your email' messages.

The truth is, I have been experiencing several fantasies regarding this situation. Mostly, ridiculous of course, but nevertheless distressing in their own way.

1) This is a multi-trillion dollar laundering scheme.

2) The banks are actually run like the mafia, where all the 'executive leadership' have to pony up payments to the 'Don' (presumably the World Bank, International Settlement Bank, or other such global 'central' bank) or they will be 'dissapeared' into a New Jersey land-fill.

3) The "rescue" is for 'favors' being called in by the money men behind the political farce we call the two party system.

4) The word 'credit' has replaced the word 'value' in their vocabulary, they are now incapable of understanding anything other than debt as a tool to control everything.

5) This is the 'payday' the politicians promised their elite 'base' and now they are simply fighting over who gets paid first. The $700 billion idea was just to have enough to pay everyone off at the same time and avoid pissing off the elite masters.

I could go on..., but why bother.

In the end the evidence points to the fact that the leeches are too numerous to accommodate on the teat of the American people, and the 'wise' 'anointed' 'economic geniuses' that slid into power figure we'll just replace them all with one giant bigger, better leech.

Any plan that gets accepted will have the hallmarks of our demise on it. Like I said elsewhere, the debate isn't about how to solve the problem, it's about how to maintain the draining of wealth from the American's who's destiny is apparently to be fleeced by the PTB forever more.

Instead of putting up 700 billion why not just administer them?
Take up to one year then, to decide how best to revive the institutions :
Because, after all, we are putting up the money for fannie mae and freddie mac; in addition to this we are now putting up the money (700 billion) additionally, what's next?
This is not going to stop just because we put up 700 billion in two companies. What is going to happen with the next company? and the next? Are we going to continue to put up billions and trillions of dollars and buy all of the bad debt of all of the companies?
The hope of Bernanke and Paulson is that we will not have to do this, but is this 700 billion any guarantee that this will happen? Ofcourse it is not.
It seems to me that the most logical order of action would be to first stop trading the stock, then administer the company for up to one year(more if needed).

a. stop trading stock (the sole purpose is to avoid collapse of the stock so immediacy and
surprise is essential).
b. administer the company.

The management it seems to me, should take an immediate pay cut of around 15% or 20%, so if a company chooses to 'fail' so to speak just like what Washington Mutual did, then all management would entertain a pay cut, this should include all branch managers and especially higher ups, they should take up to 98% cut.
If this is enacted into law, I think this would be better for us, that is the common folk.
When a company fails like Washington Mutual, but then is taken over, doesn't this mean that they did not really fail? What exactly is the meaning of the term 'fail'?
The real aim, for the 700 billion, is to instill confidence in the stock market and to the economy in general.
As for the two companies in 'holding company' status, if their stock prices start collapsing at some point in time in the future, it may be beneficial to stop trading the stock and administer these companies as well.
If this does happen, at some point in time in the future, perhaps at this point in time, if it is in the Obama campaigne's interest to do so, this perhaps would be a good reason or excuse to keep Paulson as treasury secretary.
Since he ran Goldman Sachs, and since the gov't has this company in recievership, then why shouldn't he run it as Treasury Secretary?