For those who trust in man, man shall be their destruction. For those who trust in politics, politics shall be their judgment. There is the line attributed to the classic cynic H. L. Mencken, “Democracy is the theory that the common people know what They want, and deserve to get it good and hard.” Isaiah had a more blunt warning: “Cease ye from man, whose breath is in his nostrils: for wherein is he to be accounted of?” (Isa. 2:22).
The issue is simply of faith: faith in men versus faith in God. This has had its most profound reckoning recently in our “economy,” namely in the great crisis of mass home foreclosures and the folding Wall Street Banks that foolishly bought the bad mortgage-laden instruments. No one but a few Austrian-school economists, a few Biblical-law students, and one Congressman (Ron Paul, R-TX) were warning of an impending implosion before a few months or even weeks ago. They saw the dominoes lined up; they knew the first one falling would send all tumbling. But government leaders, financial “experts” on TV, and the masses who trust (a key-word) them have been “hopeful” and “confident” in something called “our economy.”
Barely a week ago, in his Sept. 15 press conference, Treasury Secretary Henry Paulson announced that “the American people can remain confident in the soundness and the resilience of our financial system.”[i] Whence cometh this faith? What have these financial leaders and directors shown us so far in order to earn this assurance? Nothing. They make these promises and assurances based purely on their titles. “Treasury Secretary”: well then he must know something about solving this crisis. Yet if he and all his hoards of bureaucrats and analysts are so confident in their abilities, why did they not see this problem coming? Paulson shifts the ultimate blame, “I’m playing the hand that was dealt me.”
One journalist notes, “It’s all about confidence, stupid”[ii] (parodying the line from James Carville, Bill Clinton’s campaign manager: “The economy, stupid”). He continues, “People have to believe that the institutions they deal with (their “counterparties”) will perform as expected.” He’s exactly right, we have to be able to trust our Bank & Trust. What we are learning today, however, is how untrustworthy the system really is. But our columnist-chosen at random-gives a questionable spin: “We are in a full-blown crisis because investors and financial managers-the people who run banks, investment banks, hedge funds, insurance companies-have lost that trust.” This is an explanation of the shallowest sort, and quite backwards, too. Is it not more accurate to say that banks have lost trust because there is a crisis? People don’t just lose faith in anything for no reason. There is a trigger, or a series of failures. At best there is a simultaneity and reciprocity between confidence and performance (or at least perception of performance, such as accepted graphs and charts, or “expert” opinions, or all three). The question that should be addressed is, What starts the chain reaction? There is something much more fundamental here than an amorphous mass loss of confidence. Neither will it suffice to blame the failures on vaguely defined “bad mortgages.” There exists something even more fundamental than mass bad lending. I believe a combination of past legislation and Federal Reserve manipulation are at the base.[iii] This is a critique of salvation by politics.
The expansion of the “Community Reinvestment Act” under Clinton in 1995 exacerbated the market for mortgage lending to borrowers who otherwise would not have qualified. The artificial demand for lending rolled into itself the obvious danger of default by high-risk borrowers: but the administration, as well as congress, demanded this in the name of “the convenience and needs of the communities,” stating that “regulated financial institutions have continuing and affirmative obligation to help meet the credit needs of the local communities in which they are chartered.”[iv] In other words, if banks want to continue to indulge from the hand of government-created money and insurance, then they must prove to government agencies that they are lending said indulgences to even the un-creditworthy in their community. Sound like a recipe for economic disaster? It was and is. This is why banks originally opposed the Act strenuously in 1977. They didn’t want to be forced to loan to those with little or no credit. They didn’t want to be forced into bad lending. Only one banker-South Chicago banker Ron Grzywinski, a later devotee of both Clintons-in the entire nation could be found to testify in behalf of the Act in Congress, and it passed on his testimony.
Economist Thomas DiLorenzo explains that the financial messes we currently strain through are simply the chickens coming home to roost after 30 years of progressive government interference and artificially deformed markets. Read his article “The CRA Scam and Its Defenders” here, and realize that this present crisis is not some sudden loss of faith, but the whiplash of the long tail of that old serpent, salvation by politics. This “bailout” is not merely economic, it is highly political, it involves every level of politics from greedy loot-lusty voters, to spineless representatives (save about one), to shady nefarious hand-shakers in every corner of the executive behemoth, to the non-government/government-whichever it may be-Federal Reserve “creature from Jekyll Island” System.
Fortune magazine writer Peter Eavis pointed the finger at the Federal Reserve over a year ago, but figured the “System” as one faulty group among many.[v] Truly there were many partners in crime in this downward spiraling debacle, but what is the root cause? Retired Professor of Finance, Michael S. Rozeff, emphatically explains that the crisis has its origin in “excessive central bank money creation,” and he concludes that “we should place the blame squarely where it belongs, which is on government failure, that failure being in the fiat money inflation brought about by the Federal Reserve.”[vi]
I mentioned Clinton campaign manager James Carville. Carville had three slogans posted in the “war room” during the Clinton campaign against Bush, Sr. They were: 1) Change vs. more of the same, 2) The economy, stupid, and 3) Don’t forget healthcare. I’ll leave it to the reader to decide who exactly is offering “more of the same.” Since his days with Clinton, Carville has left campaign management and gone into movies, producing All the King’s Men: a 2006 feature about an ambitious Southern socialist politician. One show business is as good as another. The movie was a box office flop, whereas his previous show won Clinton the presidency in 1992. Why the public is readily drawn into one show and not into another is worth considering. Yes, “The economy, stupid”; but why do we trust any given politician or agency to fix the economy when none has ever done so before? Why can we sense a bad act in the movies and not in real life?
Let’s be serious. When most voters hear politicians toss around the word “economy,” they think “Money for me.” This is why politicians toss it around so often. Most voters, most Americans, have no principle with regards to other people’s money or fiat money which devalues everyone else’s. Sure, they probably-probably-wouldn’t walk over to their neighbor’s house and steal from him directly, but they have absolutely no problem with taking that money if a politician signs it their way (which means, essentially, that they probably would steal directly from their neighbor if they knew they could get away with it). It is theft, simply. We live and breathe and jostle political elbows among a nation of thieves for the most part. It is a fact of life that governments, once given power, never relinquish it. It is equally true that people, once the beneficiaries of government extortion, will never relinquish their “benefits” voluntarily, even if it means others must bear the burden of being stolen from. This is the basis on which most people will vote: the candidate that promises the most loot. “Get more from them than they take from me.” This is salvation by politics. The present crisis is part of the Judgment Day of their false god.
It was a combination of bad legislation and Federal Reserve manipulation at the root that has led to our problems. It was a complex of hasty decisions-bad decisions-by all parties involved, rushing in to take advantage of what was seen as a beneficial situation for everyone: low interest rates, easy credit, 100%+ financing. They were all vultures-money printer, lender, borrower, politicians-all of them circling the carrion of government money. Now the fix for the problem has been stated as more carrion-more fiat subsidies. Treasury Secretary Paulson wants $700 billion(!) more fiat money in order to bailout his friends over in the big banks and now-government mortgage agencies. Are we missing something here? Was it not such inflationary practice that blew up this bubble in the first place? And the cure is supposed to be to blow up an even bigger one? This is why Paulson and the administration are trying now to rush congress into authorizing the money. Like the greedy lenders and borrowers who were unleashed by the original legislation and policy, Paulson is trying to pressure our representatives into mortgaging our future without reading the fine print or counting the consequences.[vii] At least there is currently some congressional opposition to the pressure and the bailout.[viii]
Who is this guy Paulson anyway? Remember, he was originally CEO of banking giant Goldman Sachs-some of the very people involved in the problems in hand. Now he has been elevated to the throne of the Treasury, and is demanding the money to be authorized to save his old boys. A revealing headline: “Is it safe to trust a Wall Street veteran with a Wall Street bailout?”[ix] Another good question that has not been given time or consideration is, Should Wall Street be bailed out to begin with? There was no debate. We are simply told that this was the only possible solution. We should at least count the costs of the alternative. No. We are pushed toward a congressional decision. This is madness, and it carries all the marks of a classic government power grab: crisis mode, insider officials, suppressed conflicts of interest, pressured legislation. While Paulson told the press “I don’t take lightly” either moral hazard (encouraging more risky lending by setting a precedent for bailouts) or putting the taxpayers on the line, his actions show just the opposite, and now prove him untrustworthy.
So salvation has been promised in the form of fiat money. This is spoken of as “tax payers’ money,” which it is in a technical sense. The money will not be taxed directly, but will be pumped into the money supply, thus diluting the value of what money we already have. The loss will show up in a decrease in purchasing power: prices will rise on everything. This is the hidden tax of inflation. If the bill passes, a year or so from now voters will be complaining about high food prices and high commodity prices and demanding government do something about it. “Government, save us from what we wanted government to do for us last time.” Those who trust in man . . .
There is, indeed, a lack of confidence in the system; but there has always been bad faith, by which I mean misplaced faith, in many places for a long time. Question: Where do you think our faith- the faith of millions of voters-has been most misplaced? No doubt in politics, which means, no doubt, in man. H. L. Mencken, again, provide proper cynicism: “The saddest life is that of a political aspirant under democracy. His failure is ignominious and his success is disgraceful.”[x] These are the leaders we presently all but worship.
Isaiah warned God’s people 2750 years ago to “cease from man.” Man’s self-vaunted abilities are as delicate as the breath in his nose. Yet we pretend that we live and die politically by the words breathed out of his mouth. This is folly. God gave us government and law to protect our person and property from the scheming lusts of each other and our leaders. We do not see government in this Biblical way. Instead, we delude ourselves with faith in political leaders, and deluge ourselves in promises of fiat prosperity. This, indeed, is folly. It is misplaced trust in man, and it will lead us through a reckoning before we return to anything like soundness and resiliency.
[i] http://www.whitehouse.gov/news/releases/2008/09/20080915-8.html, accessed Sept. 23, 2008.
[ii] Robert J. Samuelson, “The Great Confidence Game,” 20 Sept. 2008, http://www.newsweek.com/id/160098; accessed Sept. 23, 2008.
[iii] A couple good articles to read are “The Real Culprits In This Meltdown,” Investor’s Business Daily, 15 Sept. 2008; and Thomas DiLorenzo, “The Government-Created Subprime Mortgage Meltdown,” LewRockwell.com 7 Sept. 2007.
[iv] http://www.law.cornell.edu/uscode/12/2901.html; accessed Sept. 23, 2008.
[v] “Subprime: Let the finger-pointing begin!” Fortune, 9 July 2007; accessed Sept. 23, 2008.
[vi] See Michael S. Rozeff, “The Subprime Crisis and Government Failure,” LewRockwell.com, 21 April 2008; accessed Sept. 23, 2008.
[vii] Martin Crutsinger and Charles Babington, “Paulson urges quick action on $700 billion bailout,” AP, 21 Sept. 2008; accessed Sept. 23, 2008; Glenn Somerville, “Paulson urges Congress not to slow bailout bill,” Reuters, 23 Sept. 2008; accessed Sept. 23, 2008.
[viii] Julies Hirschfeld Davis and Jeannine Aversa, “Dodd: ‘No second act’ to fixing financial mess,” AP, 23 Sept. 2008; accessed Sept. 23, 2008.
[ix] http://www.miamiherald.com/newxs/politics/AP/story/695796.html, accessed Sept. 23, 2008.
[x] H. L. Mencken, “Note on a Cuff,” A Mencken Chrestomathy (New York: Vintage Books, 1982), 153.
Joel McDurmon is the Director of Research for American Vision.
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