Just about every economic expert agrees that government intervention causes ciaos in a free market capitalistic system.

They agree just about 100%, this particular down turn in our country’s economy was definitely caused by government intervention, starting back in the Carter Administration’s answer to the “Black Housing” problem with the birth of the “Community Reinvestment Act (CRA)”. Carter didn’t have the time to implement it and the next administration would not. However each President blames the previous administration including the Obama administration, for what they inherited. Let us not forget laws are passed by the congress and may not portray the policy of a President, depending on their makeup.

Have you ever heard a speech by President Obama which he was taking ownership of the problems he inherited? To the contrary all the moves he is making economically is so he can blame the Bush administration if any of it fails

Each administration always accuses the previous one of “lack of oversight” or “non transparency” when a situation such as this happens. Each administration reacts differently because the questions they ask are, “how can we get the most out of this politically”? Another question is “what did I (President) promise during my campaign”? The question that should be asked, after first getting an in-depth understanding of the problem, must be “what is best for the people of this country?” If this question is asked by every politician at every level of Government, we would not be prone to debacles such as we are experiencing now.

There are other inhibitors for government making the right decisions. The politicians usually answering the questions are ones who have never ran a business or had to meet a payroll in their life. Others have been collecting a paycheck from the Congress so long they have been involved in creating these messes and now want to cover their butts.

One root cause of our problems is the extortion of Congress by special interest groups such as the Auto Workers Union (UAW), Steel Workers Union, big financial and Wall Street intuitional lobbies. All of these and more have donated Billions of dollars to the Democrat party and along with the radical left wing PACs and media supporting their causes have the government tied up in knots. This is not to say the Republicans haven’t received some as well, however the amount is about 10 to 1 in favor of the Democrats.

Now that the Democrats have control of both houses of Congress these groups want pay back. By the way this Union thing started screwing things up in 1935 with the enactment of the National Labor Relations Act (NLRA) which made wages much higher causing a higher unit cost of business products and services which had to be passed on to the consumer. Manufactures were caught without the money to expand production and as a result consumers weren’t buying, unemployment rose, and the economic climate was drastically stifled. The NLRA, in my opinion was one of the major players in starting the “Great Depression”.     

I believe answers to the wrong questions, which are slanted because of the above, are disastrous and is what has caused, not only our current situation, but lead us here in the first place. Results of the answers years ago, such as the NLRA are still having affects on the economy and the answers to the wrong questions today will have much longer effects because of problems and associations both foreign and domestic.

Wrong answers leads to government pretending to solve problems by creating new bureaucracies, Government run or sponsored intuitions, and regulations which will over time screw up free market capitalism. Free market is the process based on competition and encourages people to do their best too beat the other guy. If regulations are introduced to provide “safe havens” such as insuring failure, competition will cease to exist. If interest rates are regulated, competition can only go so far. Regulations are usually put in place to level the playing field.

Every president thinks he has political capital which really means he thinks he can get away with political decisions that put him in good favor with particular groups of voters. When he tries to tweak the free market system by interjecting political favoring the country will get screwed up and usually the next president has to pick up the pieces.

This screwing around is not limited to the President. The Congress has too much to say about tweaking the system favoring their voters, in most cases more than the President. I have always said if Congress took off at least nine of the twelve months every year we would be in much better shape.                                 

One really wrong question was asked, by our “first black President Bill Clinton,” to the treasury department was, how can we help the poorest voters experience the “American Dream of owning their own home”? Wasn’t that the same question Carter asked?  

This was not only the wrong question but it was asked for the wrong reason which resulted in the wrong answer. Since the answer was “yes we can” the solutions use in making this happen, revival of the CRA, caused catastrophic results. You have to understand that at this time the housing values were starting to climb. Dot-Com companies started to pay outrages salaries which together put just about everything out of the reach of the lower income families. So the answer was to come up with some real creative lending schemes and have them backed by the Government’s “MAE and MAC” siblings which are essentially the taxpayers. 100% and even 110% mortgages were made available and the lending institutions were told by the Government, they would have to make these loans which would be guaranteed by the Federal Government.

The wrong reason was really not about the “American Dream” but to maintain a lock for the Democrats, on the low income voters. This reasoning also was backed by the notion that the housing market would just keep escalating and every body would make money when selling their home or by refinancing their mortgages.

An unintended consequence was that this became real popular with the people with very good incomes as well. They also got into this market and started buying homes that their dual incomes could cover the monthly payments with no down payments. Some even bought homes with the intent of “flipping” (selling) them in a year or two, and took out low cost 5 year balloon mortgages. Others took out variable rate mortgages at more than reasonable rates.

Contractors and national home builders started building houses as fast as they could and selling them at inflated prices. A large percentage of the houses were purchased by speculators, with 100% mortgages, with the intent of selling them in a few months and making a bundle. Believe me a lot of money was made in a relatively short time, but California and the Country as a whole started to see a housing “glut” around 2007 and all of a sudden people could not sell their house or in some cases houses.

When we sold our last house in California in 2002, the woman who bought it took out a 100% thirty year 1^st mortgage (interest rates we very low but I forget how low) as well as a five year balloon for another 10% to cover the closing costs and the down payment on the balloon. In 2007 her balloon came due but at that time housing prices were still going up, and she must have covered it because we were out there February 2009 and she was still in the house.  She most likely refinanced the whole house including the 10%.  However, the bottom dropped of the California housing market in late 2008 and her house is now worth only what we paid for it in 1996 leaving her with an upside down house.

People who had these “creative mortgages” were fore-closings at a staggering rate in 2008 and 2009 which started to affect the banks and the mortgage lenders. And now we all know the rest of the story of how just one stupid answer to a politically motivated wrong question caused the collapse of our entire “Financial System”, but not without help.

The Federal Reserve System is another Government intervention to the free market capitalist system. Adjusting the prime and lending interest rates results in an artificially reflected market. In free market system it is the consumer who determines the terms, conditions and prices. They look for the best prices, discounts and terms.

It seems that every day the “Feds” meet they would come up with new ways and rates to muck up our free market system. The stock market now makes decisions based on the Fed’s rates. By doing this the stock markets are reacting to something that, in the real world, is not happing but since the Fed is dictating the lending rates they have no choice

I guess low Fed rates spur corporations and banks to borrow and high Fed rates slow the borrowing. How novel is that?

What do you think would happen if there were no Federal Reserve? First of all we would save a lot of money by relieving the Government employee count, but my guess would be the free market would react to the consumer demands. The rates would go up until borrowing slowed or stopped then would come down until borrowing started to pick by consumers shopping around looking for the best deals and eventually the market would find a leveling point. Now isn’t that a novel idea?

Our crisis did now happen because the free market system doesn’t work, it happened because the Boneheaded Congress and the Federal Reserve screwed with it for political purposes and because they mucked up our free market system our financial systems are collapsing, and it’s for real. All the interjections of the Bonehead Congress broke the system which took away the power of the consumer. The stock market plunged taking away the savings of the nearly retired and everybody else, people are losing their jobs resulting in home foreclosures and what does our Bonehead Congress and President do?

They start spending money faster than they can print it, which means they have to borrow more. Doesn’t this sound like the 100% mortgage problem that started “The Mess We Are In”? They panic and now are totally asking the wrong questions, or in this case making wrong assumptions, spending based on political reasons and feeding money to organizations that should go into bankruptcy and or reorganize which they will have to anyway.

Their solution was again, to borrow and print more money, like $3.7 Trillion dollars. This will create an interest payment of well over $500 Billion a year which over ten years will be more than the original loan or around $5 Trillion. That leaves the total of the entire bailout worth almost $9 Trillion. We will then have an upside down federal treasury. We should get ready for a 50% income tax for every body starting in 2013.

The reasoning was that during the “Great Depression” not enough money was spent which allow it to go on for almost a decade. Again, the wrong answer to a wrong question!

First, most of the decision makers in the Obama administration have no, nada, association with the “Great Depression” other than hearsay. Most of them were not born until after WWII. I was born in 1938 and live thorough the resulting years and WWII. WWII did not cause the ending of the “Great Depression” which is contrary to what you hear from these “Baby Boomers” who went to liberal colleges and then went work in Government agencies with ideas of creating a new world order. They did not take the time to analyze our past history, in the financial sector, and the resulting effects it had on the economy in the 1930s, 1940s, and even the 1950 time frame.      

Anyway the “bailout” fever spread over the Bush administration and now Obama’s. The rush to save these intuitions in trouble was again the wrong answer to a politically motivated question. The question was how do now we save these financial and auto makers intuitions who in the boneheads mind “there too big to let go bankrupt”.  The politics is in the quote because both of these sectors have paid extortion money to the majority of the congress through campaign financing, again answering the wrong question for the wrong reason. I also should say they did not listen to the overwhelming response of the taxpayers who said to let these sectors go bankrupt with only 2% in favor of bailouts. We have already given GM $31million and they still will, in a short time, go bankrupt leaving the taxpayers holding the money bag.

The taxpayers are right, and usually are, because they are a larger cross section of experience with the free market system, many who are cutting paychecks and running successful enterprises, than what is in the U.S. Congress. By ignoring the taxpayers and giving out worthless paper backed by a bankrupt Government, means the Government will have to take equity shares or common stock, at some time, in all these companies and become voting shareholders. We will have the President with the majority of Congress, who by the way as I said before, never met a payroll or ran a business in their lives, in the position of directing these companies with their bonehead decisions. Does the term Nationalization mean anything to you?

WOW! I was just about to push the publish button when I got an alert from Stratfor.com that Chrysler filed for Chap.11. This post was getting to long so earlier I decided not to include a few lines about my opinion on the Automakers bail out.

I said above that the government would have to take equity shares for the taxpayer money given to the automakers. I was thinking of GM when I wrote that and never gave a thought about Chrysler. We, the taxpayers own 60% of Chrysler now even before the bankruptcy. The Government gave, as one of the conditions, that Fiat of Italy would take a 20% of the equity shares when the deal is signed and controlling ownership by 2016 with the U.S. and Canadian Governments owning another 10%.

Why didn’t the Government let Chrysler, and for that matter GM, go bankrupt when this thing started, instead of putting billions of our dollars up just to keep them afloat for a few months? Because the wrong question that was again asked was, “how do we save the Union voting block”.

I think there is something rotten with this arrangement because Fiat was suppose to buy into GM and that fell through, then Fiat wanted to by Saturn, and that fell through and it was GM that back out  in 2005 when a deal was proposed with Fiat, because Fiat had a major amount of dept in its car division. The Government thinks that Fiat has better small car technology than what is on the Chrysler drawing boards. The Government knows best.