Morning Joe 8/9/2011 -- Executive power

I didn't get to catch very much of Morning Joe today, but what I did watch was disturbing. Joe Scarborough has given up defending the limited government conservatives from blame for the S&P downgrade. Now the crew is saying that even if it is fault of the "Tea Party", Obama should call congress back into session and "do something big". The regulars, Joe, Mika, Willie and Mike, lamented that Obama is not acting tough and pushing his agenda through, and they advise him to stop blaming others, even if it is their fault, and start twisting arms and cracking heads until he can get tax hikes and entitlement reform.

After the regulars had their say, they called in the man who matters most in a crisis when top-notch political analysis is required -- Eugene Washington. Washington has a column out blaming Republicans for the downgrade -- that's his analysis. They also want a big jobs program. It doesn't matter what Obama does, as long as it's big and gives the impression that government can get things done.

We're in the crisis because government has done too much, yet at Morning Joe the rallying cry is "Do more, and do it big!" Dissatisfied with the rate of statist intervention and subsequent crises, the Morning Joe crew urges the President to move us quickly into financial collapse -- well, "financial collapse" is my take.

One of the ironic moments on today's show was a clip of Barney Frank criticizing S&P for not catching the housing crisis, a day after Fannie and Freddie were downgraded. Of course Frank was up to his thick neck in the housing crisis, and if S&P is such a discredited credit rating agency, why has government chosen them to be one of the few government appointed credit rating agencies. Un-freaking-believable.

In reality we should be downgraded

As I've said before, in the political world, spending has no real consequences because we are America, and we have to spend a lot of money. In the real world, spending and debt have consequences. At some point the real world will intrude on the political world and our house of cards will come tumbling down. Before, following a recession, we could depend on economic recovery to increase revenues and offset the extravagant spending, but we might not recovery economically for a long, long time. We've finally become trapped in a downward spiral in which structural unemployment is a reality, and government intervention has become so great that businesses are not willing to gamble in America.

We can't tax our way out, and, if we try, it will only increase the speed of the downward spiral. We're in a loop, and unless we pull ourselves out of the loop and make systemic changes to government, we'll hit bottom soon. The credit rating agencies would downgrade us right now if they simply took an objective approach, because, as it is, America is a bad credit risk.

Before we let Obama invest our borrowed money...

perhaps the country should look back over the past couple of decades. Thomas E. Woods, Jr. is a good guide, and if you read his book, Meltdown, you'll probably come to the conclusion that letting Obama "invest" our borrowed money is the last thing we should do.

Woods lays out the path from Carter's Community Investment Act (CRA) to ACORN blocking the drive through lanes of banks in a efforts to force banks into lending practices which weren't sustainable. Financial corporations share the blame for playing a game they knew was economically deadly, but their implicit understanding that government would back Fannie and Freddie made it easy for bannkers to play without protestation. Quoting Ron Paul, Woods writes:

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.

This is what needs to be understood -- government "investment" and intervention have hurt Americans -- and the very ones they intended to help. Those who claim lax regulation caused the problem, blame large corporations and crony capitalism associated with Bush and Republicans, but this problem was created moreso by Barney Frank and Henry Cisneros and the Fed than by Republican involvement. The credit rating companies blindly gave their seal of approval for the bundled mortgages which became all the rage, and, at the time, the mortgages were performing, but as everyone who understands economics should have known, once housing prices began to fall the bubble began releasing air. The credit rating agencies are selected by government, so they went with the government pressure to expand home ownership -- everyone turned a blind eye, except the Austrian economists who saw it coming.

Wood's book is a short book and it's well worth reading if you want to understand the fundamental causes which led to the financial crisis and subsequent bail-outs and stimuli from Bush and Obama. Some Republicans, like Ron Paul, sounded the warning, but, for the most part, Republicans were complicit in silence and inaction. The main point is that the Democrat's plan to "invest" even more borrowed money will lead to the same economic distortions as prior "investments" and intervention.

Woods correctly focuses on the Fed as the main culprit, but in a larger way as a statist culprit which manages the economy through monetary policy, yet hardly anyone ever mentions the Fed's role in the financial crisis and the precarious economy which could fall apart at any time. The last thing we need is more Fed mis-management and more government "investment".

The market will create regulatory mechanisms

http://www.cato-at-liberty.org/2009/03/03/real-regulators-redux/

Government regulation failed, so anyone with half a mind knows that more government regulation is not the answer. That's like treating alcoholism with Wild Turkey.

A market unregulated by government will create a need for investors to protect their investments. Right now, even, there's a need for investors to protect their investments from government regulators. Credit rating agencies, uninfluenced by government regulators which restrict competition, would compete and the winners would rise to regulate against fraud and manipulation. The best CRAs would be the ones who investigate thoroughly and provide the most reliable information.

What would happen if the rating agencies and companies become too "friendly"? They would be exposed, brought to court and retribution would break them from sucking eggs. What happens when government regulators become too "friendly" or incompetent or politically influenced? The government hires more government regulators and no one is punished except the investors.