The Sky Is Falling? The Sky is Falling?

Chicken Little resides in Washington and doesn't seem to understand our free market economy. The sky is falling! We have to spend $700 billion!

Out of political self interest, numerous politicians on both sides in the House said no bailout (HUGE kudos to those who voted on principle!). The market fell, but nowhere near a percentage record. And this morning it rebounds slightly. Predictions of world markets collapsing were greatly exaggerated. The bloated, self importance of our political leaders seems befuddled. I don't begin to understand the details of what is happening or why. I don't really even try. I stay focused on the big picture -- which as near as I can tell is this:

What seems true is our economy needs a cleansing laxative and some good hearty fiber to get things moving again. $700 billion in government bailout is just more clogging fat.

Again, I'm no economist, but from what I've come to understand about Catholic thought dating back to Aquinas and further, the ability to freely enter into agreements with others (regardless of scale) is essential to human dignity and anything that gets in the way of that ability undermines human dignity. Always. (See Thomas E. Woods' "The Church and the Market: A Catholic Defense of the Free Economy";   Michael Novak's "The Spirit of Democratic Capitalism"; and Milton Friedman's "Capitalism and Freedom")

Government's right and proper role is to 1) define the rules of the market 2) uphold the rules of the market. That's it. The government defines and defends the boundaries of the free market sandbox.

If and when the government overplays its role (see above), regardless of how well intentioned, the result is always worse that would would have happened without intervention. This is simple economic science.

A truly free market (which ours is arguably not for an abundance of regulation) organically corrects and adjusts to any given situation -- this one included. This can and does mean the loss and making of fortunes and the reality that many people will loose what they have earned. Risk and reward are inherent parts of the system. We can not have reward without risk in any just system.

This leads me to a few simple questions:

Why did mortgage securities suddenly loose value? Have these homes suddenly been flooded, burned, or destroyed? No. Have tens of millions of people suddenly defaulted on their mortgages? No. 95% of mortgaged home owners are in good standing. The answer lies in regulation: Suddenly no one knows the value of these mortgages securities because of a regulation requiring valuation on the current market. Current markets have stalled, so there is no current value. Yet most of those assets have substantial value and are performing assets. The "bad paper" isn't bad at all -- it just looks bad because of bad regulation.

If our market is so free of restrictive regulation, why aren't people with cash snatching up the undervalued mortgage assets? If I had a few hundred million lying around, I'd happily remove a billion or two of "bad" debt from banks' books to help get things moving again. There is some reason people in such a position aren't snatching these bargains up -- in a truly free market, they would. And our economy would have the cleansing laxative it desperately needs. Instead, something, somewhere (regulation perhaps, or the fear of regulation?) prevents the market from self correcting.