Comments (17)

• fundamentalist

  Excellent article! Thanks! This nationalization should prove to everyone how little difference there is between socialist Europe and the US. We are almost as socialist as they are.

  A lot of our problems stems from the complete inability of Americans to accept that the state is not all powerful. Politicians and citizens believe that the feds can solve any problem if they simply throw enough money at it. And, of course, the flip side of that belief is that the state never, ever, under any circumstances, makes a mistake. Even self-styled conservatives seem to blame the market for the current fiasco while looking to the feds to rescue us.
  

  Published: September 11, 2008 8:08 AM

• magnus

  I do not believe that the decision to nationalize these companies (which were already pretty socialistic to begin with) is motivated by economic ignorance.

  I do not believe that this action is the product of a flawed understanding of economics.

  Of course, I do acknowledge that there is a cadre of state-serving pundits and mouthpieces that are taking advantage of the public's economic ignorance to sell them on the propriety of this move.

  But I have no doubt that this whole operation is based on a plan -- starting with the decision to create these companies, to run them in this manner, to create the situation where they are essentially bankrupt (and would already be defunct under normal accounting principles), and ultimately to nationalize them.

  Prove to me that this was not planned from the beginning. Show me why I should believe that this nationalization is not merely the ultimate or penultimate step in an orchestrated effort to achieve this very result.

  People are presumed to intend the natural consequences of their actions. If someone were to drop a bag of cement from the top of a skyscraper into a large crowd of people, it would be assumed that he intended to cause death. The failure and call for nationalization of F&F is just as obvious, just as predictable, if one were merely to look at how they have been operated for decades. I therefore cannot accept the proposition that this result was anything short of an orchestrated scheme.

  Published: September 11, 2008 8:50 AM

• Liberty Dave

  Great article, but unfortunately the people that need to be reading this stuff won't be reading it.

  I try to spread the logic that this site provides to people, some of them are open minded about it, others just want to vote for Obama or McCain no matter what you say.

  I'm told that we don't live in reality, that the real world doesn't operate perfectly like we want it to.

  I just depresses me sometimes, how we're outnumbered by so many that embrace big government so quickly, not willing to let things work themselves out natrually.

  Well, I won't give up, and at least I'll try and stay as educated as possible regarding the free market and capitalism.

  Cheers!

  Published: September 11, 2008 9:01 AM

• KY Leong

  Don't ever believe all that bs about the govn saving the financial system or the home mortgage market etc. It's their own a.. they are trying to protect; check this out

  http://www.moneymorning.com/2008/09/11/fnm/

  As always govn is conducted in the interest of the State.

  Published: September 11, 2008 9:28 AM

• David Ch

  I share Magnus's fruatration, but I do not share his conspiracy theory. there may well be some sprinkling of culpable cynics who are aware of th eeconomic truth but knowingly push harmful policy because it suits their own partisan agendas, but for the most part, benign wellmeaning intent combined with economic ignorance fuels the popular support of most people for interventionism. This is testament to the success of the Leftist sales pitch this last century.

  On Magnuss's references to the reason for hypothetical cement bag throwing: Interesting neurological and psychological research in a number of quarters shows up the cognitive bias that lies in all of us: Given observed adverse consequences, we humans tend to ascribe the actions of others to their inner nature ( He did it because he was mean/nasty/wanted to hurt ....), but we ascribe our own actions that turn out negative consequences, to the force of circumstances pertaining at the time ( I had no choice, I was forced to do it....). When we make mistakes of judgment, we are somehow never as culpable in our own minds as others see us.

  Another way of viewing this is that we judge others by the consequences of their actions, but we judge ourselves by our intentions, whatever the consequences. Nobody is completely immune to this double standard.

  Published: September 11, 2008 10:11 AM

• magnus

  for the most part, benign wellmeaning intent combined with economic ignorance fuels the popular support of most people for interventionism.

  I am not talking about popular support. I am talking about the people who started these companies, funded them, ran them, benefited from them, and all of the people who acted over the course of decades to bring them to this current state.

  Give me one reason to believe that these people were benign and well-meaning.

  I fail to understand your point about judging others by their actions only. The entire Western criminal justice system and Judeo-Christian moral framework rests upon the concept of the guilty mind -- guilt is performing a harmful act while possessing some level of mental awareness that such harm would result. Levels of guilt range from the most culpable (where the harmful outcome was the actor's purpose or design in taking the action), to moderately culpable (mere knowledge that the harmful outcome would result), to lesser levels of culpability (that one consciously disregarded an unreasonable risk of harm, or behaved in a reckless manner where harm was a likely result).

  We can't read people's minds, and criminals rarely announce their bad intentions. So, we have to guess what their guilty mental state was by determining, from the evidence, just how obvious it was to the person in question that harm would result from his actions.

  Financial failure and bailout were patently obvious results of operating F&F this way. I must therefore assume, until proven otherwise, that those who participated in this failed enterprise intended or at least knew what the result would be -- nationalization, i.e., sticking the losses to taxpayers, and continuing to stick all future losses to taxpayers in the future.

  I do not particularly care if most or even if all other taxpayers other than me willingly or even gleefully accept the burden of bailing out F&F. I do not care if the man on the street is benign or well-meaning. I simply do not accept the moral or legal or burden of this catastrophe. Therefore, to the extent that I am being compelled to pay for it, I am being defrauded and/or robbed.

  I will continue to believe that this nationalization scheme was the anticipated result until and unless someone presents convincing evidence to the contrary.

  That is not a "conspiracy theory." That is logical and legal reasoning.

  Published: September 11, 2008 10:35 AM

• Curt Howland

  I must agree with the "ignorance" stand here.

  Most people do in fact mean well. They want to think that they can "do something" to make things better. Well, the very idea of "doing nothing", of "getting out of the way of a collapse", seems to be insanity. Like letting someone drown rather than rescue them.

  I'm reminded of religion at this point: Because the result of evolution looks planned, because things seem to have been "made", then they must be. I have hands, I make things, so these other things must have been made too.

  So with the economy. I can make decisions, I have an effect, so if I make a really big decision I can therefore have a really big effect. It is only logical that if a big enough actor, such as the government, steps in and makes a big enough decision, like bailing out F&F, then because the intent of the act is a good one then the effect of the act will be a good one.

  Look at the arguments by Michael over in the Price Gouging Law article a couple of days ago. Michael is desperate to convince everyone that, since rescuing people is "good", then forcing people to be rescued is therefore good.

  This bailout is exactly what Michael is arguing for, because the alternative would be to "do nothing" and that is unthinkable.

  What's that quote again, "Well meaning men of zeal"?

  "Experience should teach us to be most on our guard to protect liberty when the Government's purposes are beneficent. Men born to freedom are naturally alert to repel invasion of their liberty by evil-minded rulers. The greatest dangers to liberty lurk in insidious encroachment by men of zeal, well-meaning but without understanding."
  -- Louis Dembitz Brandeis

  That could have been written yesterday, ne?

  Published: September 11, 2008 10:41 AM

• Tehiya

  I am new both to this site and to Austrian economics, so please excuse my limited knowledge on this subject. This article agrees completely with an interview posted on CNBC.com today with a money manager who is predicting a worldwide depression based on the bailout of Fannie Mae Freddie Mac and the forthcoming bankruptcy of the US government. I am an investor in the stock market, so the accuracy of these predictions matters a lot to me. My question is this: when I read Americas Great Depression, the introduction starts with a prediction that the 1980s will be the beginning of a great economic collapse due to wrongheaded government intervention. Obviously, this didn't happen, and in fact it was a good time to get into the stock market. So, can anyone give a good explanation as to why Rothbard was wrong then, and how that pertains to today's situation? Thanks.

  Published: September 11, 2008 1:14 PM

• fundamentalist

  Tehiya: "So, can anyone give a good explanation as to why Rothbard was wrong then, and how that pertains to today's situation?"

  I've only read bits and pieces of the book so far, but I'm guessing that Rothbard didn't foresee Fed Chairman Volcker clamping down so hard on the money supply in the early 80's. The twin recessions of the early 80's were pretty severe, but because no one tried to bail companies out they ended quickly.

  Published: September 11, 2008 1:19 PM

• Eric

  The 80's also did see the collapse of the saving and loans industry. I forget the number, but I believe that little mess cost the taxpayers 100's of billions.

  Keep in mind that even Austrian school economists and friends have no crystal ball. The theories can only indicate future directions and only when all else is held constant. And rarely do the predictions come true in the time frame predicted. After all, if Austrian school people had a really good crystal ball, then Mises.org wouldn't need to ask for contributions and donations.

  That said, it's been my observation that most predictions of doom are a bit overblown. As Milton Friedman used to say, "there's a lot of ruin in a country" meaning the country takes a pretty good punch.

  Also, there's been a huge increase in the world economies, and world trade has increased much more than Rothbard would have thought. Remember, we were still in a cold war at the time. This improvement in trade has brought great increases in wealth, which probably was a major reason that the 80's didn't collapse as much as Rothbard predicted.

  Thank goodness for the imports found in the 99 cent stores (which are more like the 149 cent stores now a days). Without these bargains, brought forth by the new capitalism practiced by the former communist nations, we'd all be quite a bit poorer. It remains to be seen just how much poverty will result from the wasted trillions spent on the wars since the 80's (drug, terror, climate charge etc.).

  Published: September 11, 2008 3:07 PM

• Henry Watkin

  Tell it like it is magnus! Check this out:

  "FreedomWorks, a conservative non-profit organization that’s based in Washington, characterized the Fannie Mae/Freddie Mac bailout as a deal by politicians that’s nothing more than a transfer of “possibly hundreds of billions of U.S. tax dollars to sophisticated investors and governments overseas." (excerpt from http://www.moneymorning.com/2008/09/11/fnm/)

  The greatest crimes of government are usually blamed on ignorance. They say, "Just give us more money and we won't be so ignorant. Just give us more power and we will do better next time." Then with more power and money they execute even greater crimes against us!

  None (how dare you!) call it conspiracy.
  

  Published: September 11, 2008 3:24 PM

• Bruce Koerber

  Is it a conspiracy theory to know that the Constitution is not being followed? Are the symptoms of an unConstitutional coup just coincidental?

  Sure the ego-driven interventionists try to direct the economy to alleviate problems. Sure it is economic ignorance that makes them think that their perception is reality and that their finite grasp of the infinitely complex market is anything other than an idle fancy and vain imagining.

  But also the ego has been seduced by the corrupt power that comes from fallacious science. This is the outcome of empiricism and the separation of ethics and economics.

  Is it difficult now to understand that the bailout, the nationalization, is purposeful and deceitful?

  Published: September 11, 2008 5:19 PM

• Mike D.

  The Fannie Freddy bailout is water under the bridge, as is Bear Stearns. What remains to be seen is who else will get bailed - Lehman, Merrill, WAMU? What's the rational for bailing one and not the other?
  
  What seems to have gone unnoticed is that Fannie Freddy senior debt, (not the mortgage backed securities) is now technically in default. The bailout means that the Credit Default Swaps payout will be minimal. Had they been allowed to go into default with no bailout, we would have had our next crisis, the Credit Derivatives Market meltdown. Who knows who this would bring down. Now, effectively, the Credit Default sellers get to pocket the premium without having to pay out.

  Published: September 11, 2008 6:37 PM

• Jeremy

  Tehiya - Fundamentalist is right - Volcker allowed interest rates to rise to almost their natural levels, causing a rapid cleaning house of many malinvestments.

  You also have to consider that from Greenspan on, the US and then the world saw possibly the greatest credit expansion in history. Per Austrian Business Cycle Theory, that means tons of malinvestments that must be worked out before the economy can healthily grow.

  Any government interference will prolong and worsen such malinvestments - the Fannie & Freddie bailout is a massive case of government intervention.

  The Great Depression saw even greater government intervention - The Smoot Hawley Tariff, massive price support systems for all manner of goods and labor, and of course the large credit expansion that led up to the Great Depression.

  It's hard to say how bad things could get - that all depends on how much gov't decides to intervene in the markets - based on current decisions, things look bleak for America's future.

  Published: September 11, 2008 7:21 PM

• Tehiya

  Thanks to everyone who answered. Basically, this means that I have no idea what course to take on the stock market, because any variable could change the outcome, and there's no predicting it. It's a great feeling driving down a windy mountain road blindfolded!

  Published: September 12, 2008 2:39 AM

• magnus

  When the government gets its fingers into an economy as much as ours has, making economic decisions becomes a matter of predicting the government more than predicting the market.

  The problem is government does not behave according to ordinary economic criteria.

  They do telegraph their actions, however. You have to learn to read the codes and hints they give in an effort to pre-condition the public to accept whatever mafia-style takeover scheme they have planned.

  People say medical services are next on the socialism chopping block, but I believe the next big invasion of the private sector will be in food and water.

  Published: September 12, 2008 11:00 AM

• gene berman

  Magnus is correct in virtually every respect but has not left room for the human propensity to not only favor ideas, plans, and programs that are good for themselves but also to fashion quite well-thought-out and elaborate arguments as to why those same ideas, plans, and programs are universally beneficial. Recognition of this truth is the most powerful argument for keeping such ideation, planning, and program-institution out of the purview of the state: so that those who don't "buy" it don't have to pay for it--and those who do, get to see the skeptical nay-sayers escape unscathed whilst they "cough up" for their folly or inadvertance. Come to think of it--that's actually pretty cheap economic education that the free market stands ready to deliver, if only it were allowed to do so.

  Published: September 13, 2008 10:35 AM