Fire and Knowledge

This is astonishing to me. Why didn’t she just throw out a few names instead of this absurd, evasive answer? Why not say, “Oh yah Katie, I used to read, you know, World, Christianity Today, and Apocalyptic Times.”

The VP debate sure will be interesting…

Congress was designed by the Founding Fathers to move slowly, precisely to avoid the sudden panic of a one-week solution that becomes a 20-year mess.

—Newt Gingrich, “Before D.C. Gets Our Money, It Owes Us Some Answers” (September 21, 2008)

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The obvious alternative to a bailout is letting troubled financial institutions declare bankruptcy. Bankruptcy means that shareholders typically get wiped out and the creditors own the company.

Bankruptcy does not mean the company disappears; it is just owned by someone new (as has occurred with several airlines). Bankruptcy punishes those who took excessive risks while preserving those aspects of a businesses that remain profitable.

In contrast, a bailout transfers enormous wealth from taxpayers to those who knowingly engaged in risky subprime lending. Thus, the bailout encourages companies to take large, imprudent risks and count on getting bailed out by government. This “moral hazard” generates enormous distortions in an economy’s allocation of its financial resources….

Talk of Armageddon, however, is ridiculous scare-mongering. If financial institutions cannot make productive loans, a profit opportunity exists for someone else. This might not happen instantly, but it will happen.

Further, the current credit freeze is likely due to Wall Street’s hope of a bailout; bankers will not sell their lousy assets for 20 cents on the dollar if the government might pay 30, 50, or 80 cents.

—Jeffrey A. Miron, “Bankruptcy, not bailout, is the right answer” (September 29, 2008)

How do senators do their jobs and still have the time to campaign around the country for a year?

“I now believe we are in for one hell of a deep downturn,” Welch told the World Business Forum in New York on Wednesday, adding that the first quarter of 2009 will likely be “brutal.”

Until recently, Welch said, he had believed the U.S. economy could avoid recession, but he has changed his mind.

“I am now caving,” he said. “Get ready for real tough times. They’re coming. There is no credit available.” (source)

Ron Paul, economic prophet? He wrote this five years ago about Freddie and Fannie, in September 2003:

The connection between the GSEs and the government helps isolate the GSE management from market discipline. This isolation from market discipline is the root cause of the recent reports of mismanagement occurring at Fannie and Freddie. After all, if Fannie and Freddie were not underwritten by the federal government, investors would demand Fannie and Freddie provide assurance that they follow accepted management and accounting practices.

Ironically, by transferring the risk of a widespread mortgage default, the government increases the likelihood of a painful crash in the housing market. This is because the special privileges granted to Fannie and Freddie have distorted the housing market by allowing them to attract capital they could not attract under pure market conditions. As a result, capital is diverted from its most productive use into housing. This reduces the efficacy of the entire market and thus reduces the standard of living of all Americans…

Like all artificially-created bubbles, the boom in housing prices cannot last forever. When housing prices fall, homeowners will experience difficulty as their equity is wiped out. Furthermore, the holders of the mortgage debt will also have a loss. These losses will be greater than they would have otherwise been had government policy not actively encouraged over-investment in housing.

Perhaps the Federal Reserve can stave off the day of reckoning by purchasing GSE debt and pumping liquidity into the housing market, but this cannot hold off the inevitable drop in the housing market forever. In fact, postponing the necessary, but painful market corrections will only deepen the inevitable fall. The more people invested in the market, the greater the effects across the economy when the bubble bursts….

I hope today’s hearing sheds light on how special privileges granted to GSEs distort the housing market and endanger American taxpayers. Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.(source)

It is not the function of our government to keep the citizen from falling into error; it is the function of the citizen to keep the government from falling into error.

—Robert H. Jackson, U.S. Supreme Court Justice as quoted in Carl Sagan, The Demon-Haunted World (Ballantine Books: 1995), p. 422.

Experiment and the scientific method can be taught in many matters other than science…. Want the students to understand the Constitution of the United States? You could have them read it, Article by Article, and then discuss it in class—but, sadly, this will put most of them to sleep.

Or you could try the [Daniel] Kunitz method: You forbid the students to read the Constitution. Instead, you assign them, two for each state, to attend a Constitutional Convention. You brief each of the thirteen teams in detail on the particular interests of their state and region. The South Carolina delegation, say, would be told the primacy of cotton, the necessity and morality of the slave trade; the danger posed by the industrial North, and so on. The thirteen delegations assemble, and with a little faculty guidance, but mainly on their own, over some weeks write a constitution. Then they read the Constitution. The students have reserved war-making powers to the President. The delegates of 1787 assigned them to Congress. Why? The students have freed the slaves. The original Constitutional Convention did not. Why?

This takes more preparation by the teachers and more work by the students, but the experience is unforgettable. It’s hard not to think that the nations of the Earth would be in better shape if every citizen went through a comparable experience.

—Carl Sagan, The Demon-Haunted World (Ballantine Books: 1995), pp. 326-327.