Ron Paul: No More Bailouts! Banks Should Be Allowed to Fail…




by Ron Paul

French businessman and economist Jean-Baptiste Say is credited with identifying the fundamental economic principle that aggregate demand for goods in an economy will equal the aggregate supply of goods when markets are permitted to operate.  Or in Say’s words, “products are paid for with products.”

English classical economist David Ricardo, among others, more fully developed this principle into what has become known as “Say’s Law.”  Say’s Law, according to Ricardo, leads us to understand that market equilibrium for goods is constant. This simply means that markets, when left alone by government planners or other fraudulent actors, inexorably tend toward an “equilibrium price” which eventually balances supply and demand for any particular good.  Thus markets will clear themselves of any surpluses or shortages in the form of excess supply and demand.

This important corollary of Say’s Law– that markets clear– is critical to understanding the moribund US housing market.  In housing, perhaps more than any other good, we see the terrible consequences of government and central bank interference with market forces.

First, the Federal Reserve Bank relentlessly increased the money supply over the last few decades.  Much of this newly created money and credit flowed from Fed member banks into the residential and commercial real estate markets, causing prices to rise dramatically prior to the housing bust of 2007.

At the same time, the Fed systematically suppressed interest rates for decades.  This led to tremendous malinvestment both by homebuilders and individuals, and encouraged a seedy subprime mortgage industry to make nonviable loans that would not make economic sense under market interest rates.

Congressional meddling in the mortgage market also added tremendously to the problem. Inane legislation like The Community Reinvestment Act literally forced banks to make thousands of loans to bad credit risks.  Similarly, Fannie Mae and Freddie Mac put taxpayers on the hook for millions of mortgages that never would meet market underwriting criteria.  And of course the real estate and homebuilder lobbies made sure mortgage interest debt (unlike most personal debt) remains tax-deductible.

The ultimate result of these interventions by our caring friends in Congress and the Fed has been the biggest housing bubble and crash in US history, leaving millions of Americans underwater on their mortgages if they have not already lost their houses altogether.  Congress and the Fed are directly responsible for millions of shattered lives, and almost unknowable economic damage in the form of trillions of dollars in mortgage backed securities.

The only solution to this mess is to allow the US housing market to clear.  All of the bad mortgage debt must be liquidated, whether via foreclosure or bankruptcy.  Banks holding substantial mortgages or mortgage backed assets must face the music and adjust their balance sheets to reflect today’s reality.  Undoubtedly this will force many banks into immediate insolvency, but such banks must be allowed to fail without receiving another nickel of taxpayer money.  Banks took the risks and made money during the bubble years; those who exercised bad judgment must now accept the consequences of their actions.

Never in American history have we needed to adopt a policy of laissez faire more desperately; never has government seemed more determined to artificially prop up an industry.  But only by allowing the housing market to clear can we hope to rebuild our shattered economy from a stable foundation.  Clearly there will be pain in the short term, but we owe it to younger Americans and future generations to allow the reemergence of a rational housing market.

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209 Comments:

  1. The Gary Johnson supporters will NOT hold us down no more and no they will NOT change our minds because we got faith of Ron Paul for President in 2012 as a write in Republican!

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  2. A bigot is a bigot no matter who you discriminate. Since you don't respect the opinions of others, especially those who despise Romney and Obama, who despise the current establishment and status quo, that make you a bigot. Since your also affluent, then that makes you an ELITIST douchbag, the 1% of America. (See what I did there)?

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  3. Then stop wasting your time posting your anti-american rhetoric?

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  4. I'm quite affluent, I wear many hats (to speak in the vernacular of the peasantry). I have plenty of "stooges" like you to make money for me! Btw, I am not a bigot, I only discriminate against the psychologically inferior. (See what I did there)?

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  5. I'm quite affluent, I wear many hats (to speak in the vernacular of the peasantry). I have plenty of "stooges" like you to make money for me! Btw, I am not a bigot, I only discriminate against the psychologically inferior. (See what I did there)?

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  6. BS. Talk to yourself in the mirror all the time. I know your kind. Just as loud and obnoxious as they are ignorant.

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  7. Ha.. if your such a superior mind, what the fuck are you doing wasting your time in YouTube? Don't you have better things to do than to mess with 3rd Party supporters, like working? You must be a typical stooge living on Welfare and Food Stamps. Anyone who thinks they're superior to others is pretty much a bigot and prejudice, like a racist. So your a bigot and prejudice, think your superior to others, think you know everything. It's people like you what's wrong with this word.

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  8. It's also obvious that you're some kind of self pitying misfit. Your self important blabbering is falling on deaf ears, freak.

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  9. .......ZZZZZ.....oh, I'm sorry, did you say something? I don't usually lower myself to speak to weirdos but your ranting is somewhat amusing! Now that you've got my attention, how about if you go suck a bag of chopped up dicks, you freaking crackpot?

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  10. Then go waste your money for someone who doesn't care or serve for you, that being Obama or Romney. It's obvious your a corporate and war mongering stooge.

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  11. Read the 1st Amendment loudmouth. You do not have a right to speak on private property. The Government cannot limit your speech, this much is true. But the owners of this video posting site most certainly can restrict your speech here and look at that,k you even admit as much. Try to sober up and post sensibly in the future. You'll not get far relying on the gov to protect you from private property owners exercising their rights on their property.

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  12. yawn.....zzzz...ZZZZ.
    You fuckin' Paultards are so boring.....
    You're all a bunch of weirdass crybaby freaks.

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  13. I don't care if Romney is the lesser evil than Obama, evil is still evil no matter what degree.

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  14. I guess you're also stupid to realize how you're serving the 1% of America, the super rich and powerful. Both Obama and Romney are servants of that 1%. Simply means your spending your 1st amendment rights for the evil reasons. Evil is Evil no matter what degree, both Obama and Romney, as well as that 1% are EVIL.

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  15. I have no right to speak here? You sir are wrong! NO ONE can deny my right to free speech. Rules and guidelines aside, YOU or no one else other than the owner of the channel and YouTube will tell me what I can or cannot post. As I said, if you don't like what I say, then don't read it! You can block me, but you will never shut me up, douchebag.

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  16. END THE FED!!

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  17. Divide the Ron Paul movement? Voting for Ron Paul will not help the movement considering he's not running for president. The Ron Paul movement was to challenge the status quo. He ran as the Libertarian candidate in 1988, might I remind you. You want to challenge the status quo, give the Libertarian party a fighting chance in 2016. A far better chance than Ron Paul winning the presidency on write-ins.

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  18. The 1st Amendment regards Gov intrusions on speech. This is not the Gov. This is a privately managed video posting service with an accompanying discussion space. You have no right to speak here. You may be allowed a privilege to speak here while you obey the guidelines set forth by the property owner.
    Please read a copy of the Constitution before you spout off about such topics. Your ignorance is the only thing you displayed with that post.

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  19. That's fine and dandy. But you have given us no reason to want the Libertarian Party to be part of the process. If modern day Progressives like Gary Johnson is all you can muster I'd just as soon leave the Libertarian Party in the dust.

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  20. Some reason you didn't pay attention during the Primary season?
    In countless Primary and Caucuses the GOP broke their own rules to disqualify Ron Paul delegates. Getting cheated out of the nomination process is hardly the same as walking away.

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