Republic Rules - The U.S.A. is a great representative republic.

Before the recent “Rescue Plan” was passed, advocates argued that immediate government action was needed or the markets would suffer and, therefore, all people would suffer.  Pro-capitalist members of Congress argued that, while the government should exert economic pressure by controlling the money supply, address the liquidity problem caused by the sub-prime mess, and aggressively prosecute illegal acts by any participants, it had no business “bailing out” businesses.

Fearing the worst, Congress relented and approved a huge move … in the direction of socialism.

Despite that capitulation, we now see the market declining significantly.  Why?  Wasn’t the “rescue” supposed to prevent that?

Certainly, it takes time for big plans to have their desired effects… but I’m going to suggest there is far more at play here… could it be that:

• The market, the foundation of capitalism, does not LIKE the move toward socialism?
• Seeing the government move in the direction of owning businesses, investors are pulling their money out of the market?
• Faced with significant uncertainty, businesses are taking a very cautious stance and putting all plans on hold?
• Individuals, fearing more government heavy-handedness, are keeping their money in their own hands… not investing, not putting it to good capitalistic use, just holding on to it?
• The market, which increased over the past few years to some extent due to all the mortgage securities activity, is now adjusting based on the sheer fact that some portion of those securities are worth far less than previously believed.

Perhaps, the market pull-back might have been LESS had the government not interfered!  Markets go up and they go down.  It is possible the government intervention has exacerbated the situation instead of helping it.

The government rescue plan was intended to “lessen the pain”… to respond to the fears of the public (and bureaucrats) and attempt to control the market.  But here’s an undeniable fact:  since markets are cyclical, there must be pain at times.  You cannot eliminate down cycles.

This is the truth:

The root of this economic problem is Congress manipulating sound business practices… essentially forcing the home mortgage industry to conform to their legislative pressure to extend loans to people who could not repay them. 

Then, Congress added fuel to the fire via the auspices of two Government Sponsored Entities (FNMA and FHLMC), which provided a ready market for the purchase of those “weak loans” AND provided federal backing to those loans, thereby removing the inherent business risk associated with those loans. 

In other words, Congress subverted the REALITY of those loans.  THE PROBLEM WAS CREATED BY CONGRESS!

Social programs pushed through by members of Congress interfered with the market.  It took about 30 years for “the chickens to come home to roost”, but come home they did.  In force!

Since government involvement caused the current problems, I believe SOME government action is necessary to help resolve the problem…. I just think they are taking the WRONG action.

And here’s a more cynical perspective:

• There are people in Congress who WANT more government involvement in the market.  Despite billions of dollars of wealth being destroyed, they are happy because government is now in more control.
• There are individuals in our country who are happy about what is going on:  they WANT more government intervention.
• There are organizations and people around the world who are HAPPY about our government taking more control over U.S. businesses since they believe a socialist system is better than a capitalist system.

I’m confident the majority Americans are still positive, contributing, responsible citizens who hold the U.S. Constitution in high regard… and believe strongly in our free enterprise economic system.

I am not quite so confident that the fewer, more vocal members of “the opposition” will be shouted down by the majority.  Sometimes, the majority is too busy working… doing what they should do… to notice that others are busy pulling the rug out from under them.