Liberty Maven

In a completely non-partisan move many different organizations and individuals on the left, right, and in between are sending a message to our representatives that we oppose the bailouts. Please show your support by going over to NoCashForTrash.org and take action.

President Bush addressed the nation last night regarding the recent bank failures.  Here is Ron Paul’s scathing response:

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

D o w n s i z e r – D i s p a t c h

Quote of the Day:
“At this point, Congress is being asked to support an uncertain entity, costing an uncertain amount of dollars, for an uncertain duration – a decision that will have implications for generations to come and requires absolute certainty.”
– Congressman Jeb Hensarling, TX, and Chair of the House Republican Study Committee

Subject: This would be simpler than a bailout

A few simple words in an arcane regulation may be a major cause of the current financial “crisis.” Removing this regulation would be simpler and cheaper than the proposed bailout.

Financial Accounting Standard 157 is a regulation imposed on businesses by the quasi-private Financial Accounting Standards Board (FAS). This rule is also incorporated into the regulations of the IRS and is further enforced by the SEC and the FDIC. FAS 157 requires businesses to mark down assets to the lowest price for which similar assets have been sold in the market.

The jargon term for this regulation is “mark-to-market.” Mark-to-market forces good securities to be valued at the same price as bad securities.

It’s important to understand that a security may be sold at a low price for many reasons. The firm selling the security may simply need to generate cash, and be willing to take a loss for that purpose. A security may also be sold for a low price because one or more of the mortgages behind that security is in arrears or default. But once a security is sold for a low price, something startling happens . . .

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The Bob Barr campaign sent letters to both the Commission on Presidential Debates and the Obama campaign requesting inclusion in Friday night’s debate in Mississippi after John McCain said he would not attend due to the importance of “fixing” the economic problems we face.

Of course, these letters were predictable and will likely be ignored, but I again applaud the campaign for fighting for every opportunity to get the freedom message out to the American people.

Most of you have probably heard that Sen. John McCain is temporarily suspending his campaign and calling for a postponement of Friday night’s presidential debate so that he and Sen. Barack Obama can go to Washington and cast a vote to spend $1 trillion of your money bailing out Wall Street.

The University of Mississippi, the host of the debate, and Sen. Obama are proceeding as scheduled. We here at Barr HQ are encouraging Sen. Obama to do just that, however, we are asking for a favor.

Russ Verney has sent letter to both the Commission on President Debates (view letter) and the Obama campaign (view letter) asking for Bob Barr to be included in Friday’s debate. In his letter to the CPD, Verney wrote that including Bob in the debate would allow them to proceed as planned and that “Congressman Barr’s participation will provide a substantive and vigorous debate of the issues facing our nation.”

Keep it up Bob. Read the rest here.

Here is Ron Paul spending almost 10 minutes with FOX News today doing what he does best: teaching. I often take solace in my own life believing that everything happens for a reason. This appearance by Ron Paul makes me feel that he was meant to be here right here right now for the sole purpose of making all of us realize the truth about what is happening with our financial system.

How vindicated he must feel after being all but igorned for 30+ years while preaching his anti-Fed, anti-regulation, pro-market gospel that now the media is knocking down his door to hear his words on the matter. There were things lacking within his presidential campaign, but here there is nothing he lacks. Watch the man do what he does best below.

Ron Paul’s truth makes Bernanke shift around in his seat during the joint economic hearing on the financial crisis from this morning. Ron Paul calls out the government as being “not smart enough”. It seems to me that is just another nicer way to say we are being stupid. Amen Dr. Paul. Amen. He then goes on to ask Bernanke the fundamental question which paraphrased is “Where does the Constitution allow for the Fed to execute bailouts and the creation of more money?” Watch it below for the non-answer answer from Bernanke.

This is one of the best articles I’ve read during this bailout debacle. Radly Balko at Reason.com hammers down the point that contrary to the media what caused this mess was not capitalism but social corporatism. Their solution to the mess is more of the same.

Forget AIG for a moment. Forget Freddie and Fannie, Merrill Lynch, Bear Stearns, and Lehman Brothers. Imagine a company much bigger. Imagine a company that at the end of this year will have spent $400 billion more than it has taken in. Worse, imagine that the company’s accounting is so bad, the $400 billion doesn’t even begin to cover the whole of this company’s liabilities.

In fact, the company deliberately chooses to use what’s known as “cash accounting” rather than the more accurate accrual accounting. Cash accounting looks at how much cash the company has on hand, regardless of future liabilities. It’s like saying if you have $75 dollars in your checking account right now, you’re $75 in the black, never mind that you’ve deferred your car payment, quit your job, and have a rent check due at the end of the month.

The company also practices dirty accounting tricks like “forward funding,” “advance funding,” and “delayed obligations,” deceptive tricks that hide its precipitous finances from auditors and its investors.

This company routinely borrows from its workers’ pension plan to pay off its debt. Its accountants then claim that because the company owes the borrowed money to its own pensioners and not to outside creditors, the resulting hole in the pension plan doesn’t really count as a liability. Sometimes, the company’s executives neglect to pass a budget at all. When that happens, they keep the company running with “emergency expenditures,” which its accountants don’t consider real expenditures for records-keeping purposes, even though they’re paid with real money.

Keep on reading this fantastic article here.

D o w n s i z e r – D i s p a t c h

Subject: Downsize DC commits suicide

We’ve heard the Treasury Secretary and the Federal Reserve Chairman make their case for a $700 billion bailout of the financial markets. We’re not persuaded. Quite the contrary. We reject their predictions of dire consequences if their plan doesn’t pass. We’re so convinced of this that we’re willing to stake our continued existence on it.

If the economy goes into a deep slump because they didn’t pass their bailout plan then charitable contributions will be among the first things cut from family budgets. If we’re wrong then we’ll be among the many institutions to fail. But we don’t believe we’re wrong. And we don’t believe we’ll fail.

In 2003 dire warnings about “weapons of mass destruction” were used to justify an unnecessary war in Iraq. We bucked the tide of public hysteria and dared to claim that there were NO “weapons of mass destruction” in Iraq.

We were right, and popular opinion, driven by political fear mongering, was wrong. Now we’re being told that our economy is threatened by “financial weapons of mass destruction,” and we’ll once again buck the hysterical trend by predicting that . . .

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Are the days of being stopped, questioned, and possibly charged for a “pre-crime” nearing reality?  Yes, says New Scientist.

‘Pre-crime’ detector shows promise

Last year, New Scientist revealed that the US Department of Homeland Security is developing a system designed to detect “hostile thoughts” in people walking through border posts, airports and public places. The DHS says recent tests prove it works.

Project Hostile Intent as it was called aimed to help security staff choose who to pull over for a gently probing interview – or more.

ommentators slated the idea that sensors could spot people up to no good from their pulse rate, breathing, skin temperature, or fleeting facial expressions. One likened it to the “pre-crime” units that predict criminal behaviour in the movie Minority Report.

…

At an equestrian centre in Maryland, 140 paid volunteers walked through a pair of trailers kitted out with a battery of FAST sensors, including cameras, infrared heat sensors and an eyesafe laser radar, called a Bio-Lidar, that measures pulse and breathing rate from a distance.

Some subjects were told to act shifty, be evasive, deceptive and hostile. And many were detected. “We’re still very early on in this research, but it is looking very promising,” says DHS science spokesman John Verrico. “We are running at about 78% accuracy on mal-intent detection, and 80% on deception.”

A very timely article at the The Ludwig von Mises Institute discusses the ridiculous collective insanity happening on Wall Street in these uncertain times.

Things like nationalizing the finance industry of the United States, which is, effectively speaking, the consequence of Federal Reserve and Treasury actions of the last two days.

The humor factor in the rally of last week has been far higher than the vertigo factor, however, as Wall Street bizarrely applauds the nationalization of the finance industry. I like to be less anxious, but not at the expense of socialism — or more likely fascism, the latter of which (when you listen carefully to the drumbeat for war with target of the month, Pakistan) is the clear direction of US policy.

Maybe former Treasury Secretary Paul O’Neil was right about those guys in front of the green trading screens on Wall Street being trained monkeys, because the actions and announcements emanating from the federal government have been anything but good for the wealth-creation mechanisms of capitalism, or for the future of liberty for that matter.

Read the whole article.