Bad Bailout, Government Bully, and Nasty Coconuts

A few weeks ago the cry came from the White House that we were in huge economic crisis and that we needed that the answer was for the government to unclog the system with another bailout -- this time equalling the total of the previous recent bailouts to the tune of $700B.

If "the Man" says there is a problem that's one thing. That's their job. "Danger! Conditions are right for quick sand to form in the free market sand box!" It was said by some, but not in a way or a forum that it was heard or understood or reached most people. And if it had, would we have listened?

But "the Man" did more than declare danger a few weeks ago. Bloated government can't help but want to do more than it's rightful, just, and noble job. Now the government saw the opportunity to be the knight in shinning armor riding in to save the nation's economy, all the while utterly ignorant that it is actually a gangly, clumsy, oaf with a tin pot for a helmet clunking coconuts together for a steed.

I think many people saw the knight for the fool he is. Most Americans opposed the bailout before it passed. But the delusion of grandeur spread through congress. And it will continue to spread, because economic hardship is a vast and prevalent dragon throughout the land. After all, a knight in shining armor can hardly refuse to help more hapless citizenry in need. The delusion will grow and grow, we will pay and pay, until it can no longer support itself and then we will have real collapse and the "must avoid disaster" of the free market self-correcting will look mighty desirable. I pray our leaders look in the mirror sooner than that and wise up.

But I've digressed to dire predictions based on nothing but principles. (By the way, never trust a person who claims "I'm against this in principle, but in this crisis we have no choice but to blow off principle and do what feels good.").

How did our government's declaration to save the day prevent the free market from self-correcting? Because no one was exactly sure what the answer would be, only that government would overstep it's bounds. There was an answer coming. It's not our job to address it.

And the very mechanisms that could and should have helped get things moving again stood still because there was too much risk (of what the government would do) and not incentive (because the government might diminish any profit) to step into the breech, take a risk, and buy up the bad debt at basement prices. So no one wanted to buy. No one wanted to sell because the government was likely a better buyer.

It's the much the same thing that has happened with charity. The government takes care of it so we don't have to. We pay taxes and that takes care of everyone, right? Wrong. The principle of subsidiarity (via Catholic social teaching) states that ANY social entity that takes to itself roles and responsibilities which can be done by more local entities (closer to the family and the individual), undermines human dignity. Undermines human dignity. Wow. How much is our government doing that can be done by anyone else? A lot. That's a lot of trampling on human dignity.

Our current crisis began with a noble and ill advised sentiment -- that everyone should have a house. Government mandates made it so lending institutions had to give loans to people who couldn't afford them. This came to include not only poor people, but middle income people who thought they could turn and flip houses. That works when values keep growing. It's disaster when value shrinks. This was compounded by the Mark to Market rule which caused mortgage securities to appear valueless when they had substantial value. Bungling idiot, this knight in shining armor! And we reward such idiocy by giving our knight more responsibility and tools to mess with new and different aspects of our free market sandbox. Whose the greater idiot? The idiot himself, or the one who follows? 

We have to start calling him what he is. Bully! Get out! This is our sand box! You are just the maker and enforcer of the rules, not a player in the sand. Get out! And take these sand-encrusted coconuts with you!

The government fix we need

Is there a problem? Absolutely. Does the government need to do something to fix it? Absolutely. What does government need to do? Get out of the way.

How do I justify this as a Catholic theologian (and not one with a degree, at that)? Quite simple. The free market is the best economic tool we (humanity) currently have for upholding human dignity in interactions between individuals and organizations through the freedom to contract.

Why has our money supply suddenly become constricted? As near as I can tell because of combination of bad or inept regulation, including:

1) government mandated mortgages to "empower" poor people to buy a home
2) government mandated current list pricing for mortgage securities, which in a stalled market is impossible to assess, resulting in the appearance of a lot more "bad" loans than are really there.
3) quasi/government banks (Fannie and Freddie May) showing exactly why government has no place participating in the free market because there is no one to watch for abuse in the free market when the government is involved. (so why would we EVER turn to the government to do more of the same with a bailout?)

The crisis seems to lie in the regulation usurping people's ability to freely make contracts. Government, get out of the way. Human dignity demands no less.

(For any puzzled by the theology and Catholic social teaching principles refered to here, please see here for all Catholic social teaching posts.

For an intriguing counter-view see here. Kudos to Fr. Dowd for weighing in, and it's well worth noting that we share a common faith and mission. He does a good job of explaining that our problem is a constricted money supply. He's right. But WHY do we have a restricted money supply? Giving more blood to a patient with clogged arteries won't increase the blood flow. What's needed here is angioplasty.

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.  

Perhaps our government is working exactly as it's supposed to

Today the House rejected a $700 billion bailout. 40% of Democrats and 67% of Republicans rejected it. And the argument has become a complex version of more vs. less regulation.

I'm no economist. I'm a theologian. As I've said below, I am highly skeptical of any measure which affords more power to our government. Why? 

One simple question: If this financial crisis is the result of too little regulation, why is it the most regulated institutions/banks who failed? Regulation does not work. The government is great at usurping power and horrible at getting anything done.

Perhaps our government is working exactly as it's supposed to in this financial crisis.  

Catholic Vote

Human dignity is the decisive issue of this campaign (and every one). Vote your conscience this November.

A National Course in True Women's Studies

Sarah Palin is taking Feminists to school. On the lesson plan: how to be a strong, powerful, compassionate woman who strives and struggles to balance family and work as she serves principles and a God beyond herself and her self interest. You do not need to give up being feminine, a mom, or a wife to be powerful and successful.

Many women already quietly know this. They are typically younger than 50 and were raised seeing the sense of entitlement of their mother's generation and saw it as playing the role of the victim. They wanted true equality, and quietly began going about it. These are the real studies in women.

Here's more information that you ever wanted to know about me. I doubled majored at university, one of them being a women's studies major. That was an adventure! I was the first male to graduate with such a beast from the University of Denver. Why did I do this? Because I wanted to understand the feminist movement. So I entered the lioness' den.

There are one story which sums up my lessons in my research.

The professor drew a spiral on the board, describing how women's lives in the past always revolved around a man. First her father, then her husband, and that her life was never her own. The professor's answer? Put "self" in the center.

At the end of class, I went up, erased "self" and put a cross. Anything less and we serve a false god. Be wary of anyone who puts themselves in the center. That's the beauty of Palin and the myriad of other women who are the true women's rights advocates -- they serve God rather than themselves and women's rights. Perhaps they serve through raising a family and supporting their husbands. Perhaps through a career. Perhaps both. And sometimes they answer the call of a town and a state crying out for leadership.

Whatever your stance on her politics, we are all in school with Professor Palin. Not only can she teach us what it is to be a woman in today's world, she can reveal what it is to be human.

May Sarah Palin Inspire the best in us.

I delight that Gov. Sarah Palin is the Republican candidate for Vice President. Regardless of the outcome, our nation will only benefit from learning about her and the dialogue that will ensue.

Men who aren't sure what it means to be men will be challenged by her strength, presence, and courage.

Women who aren't sure what it means to be women will be challenged by her prolife, profamily, and yet being a strongly Christian woman who answers her call to public life even as she's a wife and mother.

Over these next few months, we will get to know Sarah Palin. At first glance she strikes me as they type of person who has a lot of backbone and fiber to go with her outward appearances. while I'm sure there will be things that we find flaw with, she seems the type of person capable of bringing out the best in all of us.

Whatever the outcome of this election, Sarah Palin will be with us in a powerful way for a long time. We will each be better for it. Why? Because she doesn't point to herself, or even to some vague notion of etherial hope. She points to a life lived in loving service to others at the calling of her God. 

Main Street President?

Why would anyone would want a candidate for President of the United States of America to be from main street, every town America? The implication is that we want a "normal" president, someone whose "one of the guys." Really? Why not someone extraordinary? They may be from small town America, but they better be exceptional. We ought to want extraordinary.

Why do we insist on playing games? We insist on leaders who have show their capacity to rise to national presence above the rest, yet when they get there, they are supposed to show us how "normal" they are? If that was a pre-requisite  for past presidents would would never have had most of the great ones. 

What I want from my President is a person who understands human dignity and does everything in their power to uphold everyone's human dignity, from conception through death.

I want a candidate who understands that the best way to lift people out of poverty is to create a strong economy and get out of the way so that people can strive to become wealthy.

I want a candidate who understands that working multiple jobs year in and year out to send kids through college so they can have a better life is a beautiful thing, and to use such a story as the reason for the State to provide educational funding undermines the dignity of everyone involved.

I want a President who understands we are at war and the cost to human dignity on a global scale of loosing is greater than the cost of succeeding (there are no winners in war, only victors).

This election I will be voting one issue, and one issue only: Who has the strongest capacity to uphold human dignity. That single issue encompasses everything I need to know. Based on what I've seen so far, I want another candidate.

Want to learn more on the dignity of the human person? Here's a paper I've written, and here is a link to the Compendium of the Social Doctrine of the Church.

Blessings,
Patrick