The financial crisis is causing our financial leaders to make seemingly rational decisions, yet they are leading America down the road to socialism.
Why Did Freddie Mac and Fannie Mae Fail?
I believe that if we understood the answer to that question, we would be better prepared to deal with the financial crisis. The failure of these two extremely large organizations will forever be remembered as the beginning of perhaps the greatest depression of all time.
The purpose of these two giant government sponsored entities was created with good intentions to increase home ownership by making it easier for families to get a home loan. But the politicians who engineered the formation of these entities did not understand the economic principles behind what was so dangerous about how they were allowed to operate - and they still don't.
The motto of Freddie Mac is "We make homes possible" and without them many would never be able to become homeowners. When congress established the authority and provision for these two entities, they did it with the intent to make it possible for more people to become homeowners. They reasoned that home ownership was a cornerstone to building a stronger economy and therefore increasing home ownership would pull more people out of poverty. So was the thinking.
It turned out to be a disaster. Some sixty years ago, Friedrich Hayek, who was a co-winner of the Nobel Memorial Prize in Economics in 1974 and a pioneer in monetary theory in the twentieth century, wrote a book called “The Road to Serfdom”.
The Road to Serfdom is a warning against the dangers of state control over the means of production. The forward warns us about the collective idea of empowering government with increasing economic control, which inevitably led to the horrors of Nazi Germany and the Fascist Italy.
Hayek explains how easy and natural is feels for a people and its government to first dip one toe into the waters of socialism (like we have with Social Security and Welfare) and then another and another – until before they know it you are knee deep without a way to get out.
Planning The Economy
Hayek explains the path to slavery (serfdom) is a slipper slope that begins with “organization” or “planning” the economy for the larger good of the people. It starts with the people, as a group lobbies for special provision that government leader’s grant at the expense of the entire population.
Hayek says that is starts with a promise for greater freedom,
“In the democracies the majority of people still believe that socialism and freedom can be combined. There can be no doubt that most socialists here still believe profoundly in the liberal ideal of freedom and that they would recoil if they became convinced that the realization of their program would mean the destruction of freedom.”
Intervention in the economy by the government to try and to help one group of people (like future homeowners) is actually a plan against competition. Planning against competition inevitably leads to monopolies because competition has no leverage against a government entity which can always do things that a private enterprise cannot. Freddie and Fannie have grown into monopolies just as predicted by Hayek.
We are in an age of false compromise in which those who request in abundance become the greatest benefactors while those who which to be left alone become regular victums of thievery by way of taxes and inflation.
Individuals Are Irresponsible
Hayek argues that when planning fails, the individual is to blame because individuals are irresponsible. You can read it in every newspaper, the individuals on Wall Street, the individuals that bought the homes and the individuals who sold the homes are all to blame. The solution is to create a collective plan of action to refine the monopolies and add new regulations to protect the market from irresponsible individuals. (In a public address days before the $700 billion bailout, President Bush told the public of the greater good for everyone and warned of a long recession without the bailout).
Once the government takes ownership in major banks (which they have just begin), they indirectly control almost the entire economy. At this point, actions are no longer taken by individuals seeking profitable returns, but actions are taking for the greater good of the state. Hayek suggests that the people will not be able to agree as there are too many different interests.
“The inability of democratic assembles to carry out what seems to be a clear mandate of the people will inevitably cause dissatisfaction with democratic institutions. … Unable to carry out the tasks for which they have been chosen. The conviction grows that if efficient planning is to be done, the direction must be taken out of politics and placed in the hands of the experts.”
That sounds a lot like what Secretary of Treasure Henry Paulson just did with the $700 billion bailout package.
“The cry for an economic dictator is a characteristic stage in the movement toward planning. … In Germany, ever before Hitler came into power, the movement had already progressed much further. It is important to remember that, for some time before 1933, Germany had reached a stage in which it had, in effect, had to be governed dictatorially. Nobody could then doubt that for the time democracy had broken down. … Hitler did not have to destroy democracy; he merely took advantage of the decay of democracy and at the critical moment obtained the support of many to whom, though they detested Hitler, he yet seemed the only man strong enough to get things done."
Hayek goes on to say that democracy is only possible within a system of capitalism, based on a competitive system of free disposal of private property. Once collectivism dominates, democracy will fail. You cannot have both an economic dictator and a group of congressmen deciding how to run the country. (The bailout bill has just created this exact situation)
Hayek explains that when a government tried to plan the economy to redistribute the wealth, it can only succeed if the whole economic system is planned. But the price we pay for trying to reach the goal of equality is not worth the powerful hand of oppression on the entire body. The oppression of the entire economy is much worse then the free-play economy of capitalism that puts the poor and uneducated out of work (and unable to become homeowners). Equality is an unreachable goal, as Jesus said in the bible, “The poor will always be with you”. (Matthew 26:11).
Realizing this, a socialistic government will not promise absolute equality, but a more just and more equal distribution. The goal becomes “greater equality”. But, this goal is just as damaging as complete equality because both require the complete control over planning the economy - leading to much worse conditions then under capitalism. Instead of the poor struggling, the entire middle class is wipped out with higher taxes and inflation as the growing inefficient government become a burden on the entire economy.
Hayek then explains how spiritual freedom becomes a limitation when planning the economy because when trying to plan what industries will be borrowed money, someone will need to decide which compromising values will be upheld and which will not.
“Then it soon becomes the one burning question which of the different sets of ideals shall be imposed upon all by making the whole resources of the country serve it. It is because successful planning requires the creation of a common view on the essential values that the restriction of our freedom with regard to material things touches so directly on our spiritual freedom.”
Hayek says that to get the public to go along with a decision that limits our religious freedom, when planning the economy, that it is easier if the people have an average lower moral standard. (The moral standard in America has been dropping since the 60’s). Individual rights must be replaced by the rights of the state to adequately plan the economy. This has been playing out in public schools for years, as the 'Ten Commandments' and school prayer have been removed.
Information Must Be Controlled
The last phase of socialism that Hayek talks about is the destructive influent of information that is counter productive to the socialist’s agenda. Information must be controlled and the only way that I can see that being possible today with the easy publishing tools of the Internet is to make the publication of some information illegal – upon which publishers can be arrested and jailed. This is the case in many communist nations like China and more recently in Canada and is about to start in America with the ‘hate crimes’ bill that has been circulating for the last few years.
The government is using this financial crisis to quicken the process of moving our once individualistic society into collective socialism, with a financial Caesar planning the economy. Congress has overruled the people and voted for the $700 billion bailout of the financial system regardless of over 70% of the people that disapprove of the plan.
In order to reverse course, the public needs to realize that this is happening so they can take action to find congressional leaders that will reverse the directions of our government to take complete control of the economy and lead us to a trap of socialism that has failed and oppressed many nations throughout history.
The government solution to poverty is doomed to fail. The real answer is an increase in education, private businesses and morality so that neighbors help each other – without the need for the government to try and redistribute the wealth. The governments’ role should be limited to punish crime and establish a sound banking system with a sound monetary policy.
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