The most current measures being pushed by politicians to "rescue" the US financial markets are more of the same kind of regulations and "overseeing" that brought this situation about. How do you think the economic "bubble" came into being...?? This happened via government stimulation of the housing markets through the central banks (highly government controlled) and GSEs Fannie and Freddie, and also regulations against many practices that in the past would have eliminated poor risk loanees/mortgagees. (Avoiding claims that "civil rights" are being "violated" when someone is denied a loan has been a goal of many financial institutions to minimize legal involvements.)
So don't expect anything more than additional difficulties from whatever "oversight measures" and additional taxes lie ahead with a government "bail-out" if you own a business, work for someone else, are seeking employment or new business opportunities, care for your children and home, or are retired. Hmmmm...... that pretty much includes everyone but likely those under 16, who these days can't even get (if they bother to search for) a part-time job babysitting, mowing lawns, delivering newspapers and the like due to the government required tax-related paper work for anyone wanting such services.
Pertinent to the entire sub-prime mess that began this latest fiasco, Henry Hazlitt wrote in a subsequent revision of his book, Economics in One Lesson c. 1979, :
"Government-guaranteed home mortgages, especially when a negligible down payment or no down payment whatever is required, inevitably mean more bad loans than otherwise. They force the general tax payer to subsidize the bad risks and to defray the losses. They encourage people to "buy" houses that they cannot really afford. They tend eventually to bring about an oversupply of houses as compared with other things. They temporarily overstimulate building, raise the cost of building for everybody (including the buyers of the homes with the guaranteed mortgages), and may mislead the building industry into an eventually costly overexpansion. In brief, in the long run they do not increase overall national production but encourage malinvestment."
And "malinvestment" is definitely what has been happening for many years with those "malinvestment" numbers a greater percentage of mortgages in the US than ever before.(US Government Accounting Office website; Federal Reserve Board 2008 Annual Dinner Speech. However both of these sources give only a rather recent history of mortgage foreclosures and leave much unsaid.)
If you don't already own a copy of Hazlitt's invaluable little book, I urge you to get one. If you have it, reread it (I've done so more than once with mine and will do so again). Recommend the book to others...maybe even give a copy to some who are unclear on the real culprit behind this (latest and) most costly financial market imbroglio - the US government. And never forget that politicians of every stripe have been a party to what has gone before - either pushing for new measures that have kept the tangled mass of barbed wire growing or ignoring the fact that government interference is what has always been and will continue to be the cause for marketplace distortions.
While you are doing some reading on this subject of government bailouts - the current proposed version having just been (barely) defeated in the US House but sure to arise in a slightly different form - I strongly suggest reading Frank Shostak's latest article, "The Rescue Package Will Delay Recovery". In his usual complete while readable style, he writes:
"The government package is not going to rescue the economy, but it will rescue activities that the economy cannot afford and that consumers do not want. It will sustain waste and promote inefficiency, draining resources from growth and efficiency. Remember: government is not a wealth generator; it can only take resources from A and give them to B."And a reminder - or maybe new information for some - regarding the relationship of stock prices and the general economy:
"A fall in asset prices, including stocks, and a run on financial institutions are just symptoms and not the cause of anything. The key factor behind the current difficulty in the credit markets is the lagged effect coming from the Fed's tighter stance between June 2004 and August 2007, when the federal-funds-rate target was raised from 1% to 5.25%."So get some detail on what government bailouts will and will not do without being snowed by jargon used by many economist writers.
For those who want to really increase and improve their understanding of the "financial crisis," as politician-ever President GW Bush has almost hysterically insisted (and both McCain and Obama agree in at least principle) must be staved by more government intervention (taxpayer money and increased regulations), I suggest further reading from "The Bailout Reader". It is increased and improved understanding by large numbers of people that is necessary to keep politicians from continuing and even increasing the government meddling in the market place that has through the past near 100 years finally brought the financial fiasco before us.
