Something occured to me today while pondering life’s little problems as I’m prone to do: a free market economy doesn’t require rescuing. Maybe it has just taken me this long to figure out why the $800billion TARP bailout was so wrong for America. I’ll go into the bottom line of what’s going on in this country when I’m more prepared, but for now, I wanted to get your brains working on this little idea – that if we really have a free market economy we wouldn’t have needed to dump a total of $9trillion (according to a New York Times article) into it to “rescue” the economy.
We all know by now that the rescue of the economy was prompted by, well, greedy bankers and investors who wanted to make money off of every little piece of paper that went through their office, including the pieces of paper that represented their efforts to make money off of other pieces of paper (an excellent way of describing derivatives.) Banks and mortgage companies encouraged people to buy homes they couldn’t afford and to put themselves at risk by taking out equity loans. And then these banks bet against the buyers in a very sinister act because they themselves created the risk that they were betting on.
And when it all started to unravel, these business were poised to lose everything, and the belief was that this would destroy the economy (I don’t believe it).
Perhaps it would have wreaked some havoc. But I say that if it had, it would have been the best thing to happen this country, because a market will always self-correct. House prices were far, far too high. Banks were making far too much money off the wrong products – recall a previous article in which Ron Paul testified that banks in Texas were concerned about losing their key sources of revenue: overdraft fees and merchant fees on debit cards. Well I’m sorry, but banks are in the investment business: they take in deposits, then give out 1000%* of those deposits in loans. They pay out a pittance of interest on the money saved, and charge usury fees on the money loaned out. If they can’t stay in business with that model, they have no business being in a free market, period.
What the Bush administration did by enacting TARP (remember folks, it was Bush who gave AIG and other banks $800billion, not Obama) was to preserve the status-quo. And behaviorally speaking, it not only suggested to these people that they did nothing wrong, it rewarded them for nearly destroying the economy. And it means it’s going to happen again, because the underlying mechanisms were not only preserved, but encouraged.
What if TARP hadn’t happened? TARP was rushed through Congress faster than the Iraq invasion. We later found out that the reasons for going into Iraq were bogus. What reason do we Americans have to believe that Bush found out that lying wasn’t a good idea, and suddenly became honest in a dire situation that rewarded his campaign supporters…again? I suspect that things would be a heck of a lot better for you and me had TARP not happened. Some people would have lost their homes – those who bought more than they could afford; but those banks who cheated and violated market principles would have lost their shirts. Those who caused the problems would have been the ones out on the street – unemployed, trying to make ends meet, stressed, depressed, starving, and begging Congress for health care. But the economy would have survived, and it would have learned a lesson as market economies always do when left alone, and it would have come back stronger.
But the reality is that TARP and other rescue programs made sure that the wealth that was concentrated by gross violations of free-market principles (intangibles have no place in a free market, and derivatives are intangible; same with things like overdraft fees) stayed in the hands of those who stole it from the citizens of this country. Never before in American history has wealth been so highly concentrated.
It’s almost as if the people who have it all think capitalism is a game, and the winner is the one who has everything. The problem is, when a few have everything, there is no longer a market. And look around; what made America great is gone: manufacturing. Far too much money has been made in the financial industry, money made by lying and stealing, but especially by cheating. We outsourced America’s ability to make wealth, and simply started working on concentrating the wealth into the hands of the financial industry and its executives. And when they screwed up, we gave them even more wealth and worse: prevented those who made mistakes from paying for them – we paid them!
There is hope for America though. If we, the people, can wake up and realize that a free market doesn’t work if people are allowed to cheat; or we can end the tyranny of corporate rule, downsize every corporation (they are far, far bigger than the Constitution ever intended them to be) and restore a true market economy where small business reigns and provides tangible work for people willing to work hard; then we can see America return to its position as a world economic leader. But for this to happen, Americans need to realize that we can’t all get rich, and that no one can, or should, get rich quick. Success, American style, should be success based on honest effort, not being crowned the biggest cheat. Hard work and innovation are what made America great, not everyone trying to step on their fellow Americans to get more than their share of the pie.
I predict that if Americans can return to a value system that rewards hard work and innovation, instead of cheating, then we won’t ever see anything like this economic fiasco again. Americans can once again become proud of their country. And most importantly, we can all trust each other and once again become a united people – united by our hard work, innovation, honesty, and pride; rather than our misguided mutual distrust of each other which is nothing more than an unavoidable product of the corporate market economy.
*Banks can loan out far more than their deposits due to the very complex process known as Fractional Reserve Banking. 1000%, or 10 times the deposits, assumes a reserve rate as set by the Federal Reserve, of 10%. Perhaps Wikipedia can explain it, because I can’t, and I got an A in Economics!
Adding Up the Government’s Total Bailout Tab New York Times
Fractional-reserve banking Wikipedia