No one won today in Congress. Today’s historic vote defeating the bailout bill is just an opening battle in an ongoing war that may last for decades.
Today’s defeat of the bailout may be a pyrrhic victory. The bipartisan, reactionary forces led by Secretary Paulson, Fed Chairman Bernanke, President Bush, House Speaker Pelosi, and Congressman Frank will be back again very shortly. And let’s make no mistake; although those who support the bailout may call themselves Republicans or Democrats, they are reactionaries—reactionaries in the sense that they long for a world where entrenched wealth gets to keep it forever. After they destroy America, those who now are poor or middle class need but stand by and hope for a few handouts.
They want a world of old Europe that our Founding Fathers fled and overthrew. Thanks to our Founding Fathers, there is no nobility in America, or permanent titles of privilege, or permanent grants of wealth. In America, many families have made great fortunes; and then their children and grandchildren have squandered their fortune. Contrary to popular belief, if you look back 100 years, there are great turnovers among those who constitute the wealthiest in America.
Those who are currently on Wall Street and the reactionary politicians who enable them want to take no chances on what the market will reveal next. They desperately want to steal America’s money; they are willing to destroy America; and in the process, they will throw every man, woman, and child overboard in their cowardly attempts to get on the first lifeboats.
Consider for a minute Congressman Barney Frank, who postures as a friend of the little man, and is tirelessly working for this bailout. Guess who is the largest recipient in Congress of campaign money from mortgage bankers? Guess who received over $600,000 of campaign money this year from political action committees—including those representing Wall Street interests. That’s correct—it is Barney Frank.
We are told a free market is to blame for our current mess. Nonsense! It is reactionary politicians like Barney Frank and President Bush. In a free market, many more financial institutions would be bankrupt already; great fortunes among their major shareholders would have been lost and their CEOs disgraced. In a free market, there are no politicians to steal other people’s money so that those who have wealth can keep it. The free market punishes fools and the greedy without remorse.
Yes, this is a bailout and not an investment in America, as some are nonsensically claiming. If this was a good investment, Henry Paulson would be liquidating his own vast wealth in order to get in on the ground floor. Until he does this, don’t let anybody tell you that this is an investment in America.
As I sat at my computer this afternoon and saw the terrible plunge on Wall Street unfolding, I couldn’t help myself. I got up, turned on the TV, and tuned to CNBC. Commentator after commentator was asking breathlessly some form of these questions: “Why is the public against the bailout? Don’t they know that this is for their own good and how much they will suffer if Congress doesn’t pass this?” As I listened, I heard in their voices the belief that the bill will be passed eventually; I heard how they were looking forward to the suffering of the “peasants” who dared to oppose them. Talk about wolves in sheep’s clothing.
They may be right, some form of the bill may pass; but they have overplayed their hand. A populist uprising has begun. A populist uprising is never principle driven; but instead, it is fueled by anger, fear, and class hatred. Down the road, especially as economic conditions worsen, this will not be a good thing. Think of the French Revolution and you will know how badly a revolution driven by populist sentiment can end.
So where do we stand right now. If by some miracle, no bailout is passed, Chairman Bernanke and Secretary Paulson are fired, and in November, the public repudiates every politician who voted for the bailout, then a deflationary depression will begin. That’s the best case scenario. Those financial institutions that have failed will be revealed and liquidated. Many fortunes both large and small will be lost, and the social carnage will be enormous. Yet, out of that, in no more than a year’s time, the rebuilding will begin; and a healthy and sustainable economy will emerge.
If, on the other hand, the reactionary forces prevail, more money will be thrown after bad; foreigners will withdraw from our capital markets; and eventually, a hyperinflation will begin. In that terrible scenario, it is likely that the United States will split apart; and many cities will descend into anarchy. You can see why I prefer the deflationary depression.
The choice behind the two doors—deflationary depression or hyperinflation—is a terrible and tragic one. Don’t trust reactionary forces to make the choice that is best for you.
Giving Up Control 
Its funny how in all the commentator’s rantings I hear how without the bailout people will lose their homes and their jobs and yada yada yada. While I readily concede that even if we do the right thing (pretty much nothing–we can ride this out), time will be tough for a few years. But many Congressmen went back to their districts to meet with local business chambers and heard the same thing–“we can get the loans we need” “We’re not having any trouble operating” and so on. I haven’t heard of people being thrown out of their homes by force because a bank fell. WaMu fell and the mortgages simply got bought up by another bank. My credit union (legally barred from participating in most of the recent insanity) is still offering car loans and mortgages. Life goes on.
People who got rich gambling with money that didn’t exist are getting their just desserts and begging Congress for the bailout. Populist uprisings may not be principle-driven, but they can be powerful. At least (so far) this uprising is making a difference.
What bothers me are the things we don’t hear about. We don’t see any headlines for the 25 billion bailout for the auto industry because they can’t manage to build anything other than SUV’s and pickups. Ford’s even got a small car they claim gets 65mpg on diesel they claim they sell everywhere but here, because Americans don’t like diesel. Try selling it…we’ll get over it. The FED recently approved making 620 billion available to lend to foreign banks. Many countries around the world are nationalizing banks in massive bailouts. This can’t be a good omen. Government should never have this much power, should never have this much control. They can’t manage their own affairs! How on earth am I supposed to have an ounce of faith they can run mine?
I suspect that after 60 years of unprecedented growth and freedom that the pendulum is starting to swing the other way, back towards Statism and the massive failures of government to provide for anything or anyone other than itself.
Barry,
In my opinion your analysis of the current state of affairs I believe is right on the mark. I was at the dentist this morning and I got into the discussion as to why this $700B bail out in the long-run is the most socialistic act that our government has as far as I can tell ever done, and I believe that if (and it probably will) a deal goes through we will be heading up a very slippery slop. My dentist was very much against what our government is attempting to do. He claims that he, an immigrant from Europe, came to America to pursue economic freedom away from the claws of big government, and is disappointed that the United States is clearly becoming just like the environment he chose to leave behind.
I blew off the dust off of Emerson’s essay “Self-Reliance,” and thought the following passage was appropriate:
“Society is a joint-stock company, in which the members agree for the better securing of his bread to each shareholder, to surrender the liberty and culture of the eater. The virtue in most request is conformity. Self-reliance is its aversion”.
Society is now being asked to feed the rich, and in return society will be a lot poorer. I believe in self-reliance, particularly when a calculated risk is taken. I don’t recall being handed any extra bread crumbs when Wall Street was fat dumb and happy. Apparently they were all self-reliant in the good times. But now that things are not so good, society is suppose to share the pain. Bullderdash!
Philosophically, I’m with you. However, in these instances, when we’re talking about money, I’m wont to look at the numbers (I’m basically agnostic philosophically about “free markets” and other such academic dribble — well, I say that because truly free markets lead to abuses too, ie monopolies, duopolies, oligopolies, etc). For instance, back in 2005, when some of my partners began discussing starting a construction company, we had some analysts look at the numbers. From the numbers, the real estate market looked like it had peaked, and that we were on a plateau. For instance, given average income for a location, population base, given average cost of housing, interest rates, cost-of-building, and projected appreciation/depreciation, etc., it all looked like we couldn’t go any higher without injecting “crazy 88 accounting” into the deals (forget trying to fudge such things as LIBOR, etc). The fact is that the numbers weren’t on our side (or they were, but we wouldn’t be walking away with substantial profits, and that’s what it really is all about). I advised against proceeding (and hoarding cash instead). Point is, in most instances, I pour over the numbers and say “is this a good deal.” The problem is that in the $700BB US debt plan, I can’t see the numbers or the analysis. It’s too big and there are too many moving parts. And, as I always say, if you can’t see the numbers, don’t do it. I mean, are we looking at $700 BB against a backdrop of $54 TT (trillion)? What’s the pricing of the bad debt the US is buying up? What are they going to sell the debt at; and if they’re holding onto it, how long? Where is the $700BB coming from? See what I mean? Nobody knows, so it’s a damn crapshoot.
When you say “If by some miracle, no bailout is passed, Chairman Bernanke and Secretary Paulson are fired, and in November, the public repudiates every politician who voted for the bailout, then a deflationary depression will begin. That’s the best case scenario.” I do not see how it is the best scenario. You and me are pigeons. Politicians and the next President will still receive payoffs. It is the American way of life. I do understand the wealthy and wall street would benefit the most and mismanaged companies kept alive, but lets say it truly does become harder to get normal home, college, car, ex. loans (since Americans DO live on credit) this would drive Americans nuts. Like you said they could come after the wolves in clothes. The news is just news, always bad news, do you ever really hear good news?
Anyway although I’m not for the bill if not having the bail next prevents traders to trade “option put and calls” because they have already banned short-selling which is important. Short selling takes bad businesses out of the game. So since I ONLY trade options taking that financial option away from a little guy would tick me off.
What is the American public going to do? shoot politicians? I think enough fear has been put into them not to fight back. Blog, yeah, complain, but not really fight back.
-finance ninja
http://financeninja.wordpress.com
Also I do agree everyone in politics and start new. But just look at voting. The electorial vote usually always wins. This is why you hear so many people say my vote doesn’t count. how can we vote in a honest politicians. is there such a thing??? =)
Jim,
The endless repetition of the mantra “but we must do something” seems to be turning the tide back to the bailout. The next few days are of course pivotal.
Frank,
Yes we are indeed squandering a heritage that many sacrificed so much for.
E,
The numbers are indeed unknown and that is one reason giving Paulson sweeping powers is outrageous.
Ninja,
The damage has been done and now we either reveal it (depression) or we continue to cover it up. The latter will end in hyperinflation and it will destroy America. That is why liquidating the damages (depression) is preferable.
Of course. Of course I come here to find out that I am clearly a student of yours, because this is what I came up with last night.
Self-correcting economy. Let’s throw the dice and shake the trees and let it all fall out. This manipulation of the economy has been going on since Sept 11…and had they just let whatever was going to happen back then, happen, well we might not be so bad off right now.
Yikes. Bob Barr is looking good these days.
Velvet,
Exactly! If the wild credit expansion of the past 8 years had not occurred there would have been no housing mania etc. Yet, there seems to be no collective willingness to go through “detox.”
If only Bob Barr was a real libertarian.
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