Tags: ron | paul | economics

Ron Paul: Don't Bail Out Wall Street

Tuesday, 23 Sep 2008 03:13 PM

By David Alliot

Share:
  Comment  |
   Contact Us  |
  Print  
|  A   A  
  Copy Shortlink

Blame government intervention for the current economic crisis, Rep. Ron Paul, R-Texas, says in an article on CNNPolitics.com.

“The bailout of Fannie and Freddie, the purchase of AIG, and the latest multi-hundred billion dollar Treasury scheme all have one thing in common: They seek to prevent the liquidation of bad debt and worthless assets at market prices, and instead try to prop up those markets and keep those assets trading at prices far in excess of what any buyer would be willing to pay,” he writes.

He says the mess started in the 1930s when the government wanted to encourage home ownership and was looking to stimulate the economy through home building.

Quasi-governmental entities Fannie Mae and Freddie Mac, created to ensure banks and mortgage companies had enough funds to lend to home buyers, enjoyed monopoly status because of advantages doled out to them by the government.

Then Congress created laws, such as the Community Reinvestment Act, to ensure that just about every segment of population could have easy access to loans — including risky loans to people with spotty credit histories.

Add to this mix the Federal Reserve’s manipulation of the interest rates, according to Paul, and voilà — instant unsustainable housing boom, leading to a housing bubble.

Overbuilding, too many units to rent, and unequal supply-to-demand ratio combine to form a perfect storm all beginning with the prick of the housing bubble. Plummeting prices ensue. Paul points out that there are winners in this tragedy — those who find affordable housing who don’t have to rely on “creative” lending tactics for loans.

Left to their own devices, supply and demand eke out an equilibrium and the country begins an economic comeback.

The government is keen on keeping prices artificially inflated, Paul is quick to point out, however. Keeping prices high is what led to the Great Depression, he says.

Moreover, bailouts only exacerbate the problem, according to Paul: “Additionally, the government's actions encourage moral hazard of the worst sort. Now that the precedent has been set, the likelihood of financial institutions to engage in riskier investment schemes is increased” — meaning institutions will misbehave if they are certain of a bailout as a final means of correction.

Paul writes that the solution is a hands-off government. “Government intervention leads to distortions in the market, and government reacts to each distortion by enacting new laws and regulations, which create their own distortions, and so on ad infinitum.”

He says these bailouts do not work and ultimately taxpayers are saddled with the fallout: “Using trillions of dollars of taxpayer money to purchase illusory short-term security, the government is actually ensuring even greater instability in the financial system in the long term.”

© 2014 Newsmax. All rights reserved.

Share:
  Comment  |
   Contact Us  |
  Print  
  Copy Shortlink
Around the Web
Join the Newsmax Community
Please review Community Guidelines before posting a comment.
>> Register to share your comments with the community.
>> Login if you are already a member.
blog comments powered by Disqus
 
Email:
Country
Zip Code:
Privacy: We never share your email.
 
Hot Topics
Follow Newsmax
Like us
on Facebook
Follow us
on Twitter
Add us
on Google Plus
Around the Web
Top Stories
You May Also Like

Mali's Islamists Withdraw Cease-Fire Pledge

Friday, 04 Jan 2013 13:06 PM

Tens of thousands of Fatah supporters rallied in the Hamas stronghold of Gaza on Friday for the first time since they we . . .

Fmr. CIA Director Hayden: Iran Nuclear Crisis Gets 'Scarier'

Tuesday, 17 Jul 2012 18:11 PM

 . . .

Join Fmr. CIA Director for Special Iran Briefing, Assess the Danger

Friday, 13 Jul 2012 12:27 PM

 . . .

Most Commented

Newsmax, Moneynews, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, NewsmaxWorld, NewsmaxHealth, are trademarks of Newsmax Media, Inc.

 
NEWSMAX.COM
America's News Page
©  Newsmax Media, Inc.
All Rights Reserved