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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  • For someone who hates whining, you sure whine a lot….

  • >

    Guys, you have GOT to stop feeding the trolls.

  • The time has come for you damn PaulTards to shut the hell up and start supporting Mitt Romney. Face the facts and accept that the coward and traitor Ron Paul was the big loser of our primaries. We demand that you PaulTards vote for Honest Mitt Romney. Mitt Romney is very wealthy and a Mormon so you owe him your vote. Romney 2012!

  • Yo Paultard, go find a head-shrinker, take a Valium and find another hopeless cause!

    • Rob

      Dear Sir,
      I said nothing about any “cause” or Dr. Ron Paul in my commits below. I was then and am now, only addressing your commits.
      If you could read and think at the same time, you would’ve already know that. You would also know, you and anyone like you, are my cause. With tough love, Peace.

  • Rob

    PaxAeterna7

    “HERE ARE JUST SOME OF THE TEACHINGS OF ISRAEL, the Synagogue of Satan:
    Sanhedrin 106a . Says Jesus’ mother was a whore: “She who was the descendant of princes and governors played the harlot with carpenters.”
    Gittin 57a. Says Jesus is in hell, being boiled in “hot excrement.”
    Yebamoth 98a. All gentile children are animals.
    Sanhedrin 57a . When a Jew murders a gentile (“Cuthean”), there will be no death penalty. What a Jew steals from a gentile he may keep.
    Read Truth About The Talmud online”.

    ____

    Do you even know what the sanhedrin is?
    I asure you it does not talk about Jesus’ or his mother, Anywhere.
    The new testament however, refers to her being a whore.
    Have you ever read that?
    How about the Talmud, Torah, Tanach, read any of those?
    How many of each type of animal did Noah take on the arch?………..two, right?…. Wrong!

    Don’t go reading “about” the Talmud “online”. Go read the Talmud, for yourself. And while your picking up books get the rest too, read them, then open your mouth. The Jews are nothing more then G-D’s chosen people, but what are they chosen for? Exodus 19:5 you shall be a peculler treasure unto me above all people, for all the earth is mine. 19:6 And you shall be unto me “a kingdom of priest”, and a holy nation.

    A kingdom of priest,…..for what?…..to who?
    Why would G-D need a kingdom of priest? A whole kingdom with each and every person a priest, hhhmmm. Can’t be for the Jews to be priest to the Jews, all Jews are priest, that wouldn’t make since……… Interesting, yes, no? Do you know? You should.

    Knowledge is power, a little new knowledge can feel impowering. But usually, it’s just enough to show, you don’t know enough.
    Keep reading, keep digging, never stop learning, find your truth in the original writings of all teachings. Not what someone tells you what it says………. Thats why this country is in the mess it is. Keep your blinders on and enjoy the kool-aid my friend, you can have my share to.

    The Mid-East is not our problem or concern. It’s nothing more than an 6 to 7000 year old fude where two brothers (who turn into two nations)fight for the birth rights to the family inhearitance.
    Who cares, nothing is going to change. Unless we get out of the way, of something thats none of our business, and let them duke it out. It will never end, nor will the flow of our taxs dollars to it.

    Again, enjoy the kool-aid, but becareful and leave early, there will be very long lines for you to wait in.
    Peace

  • Anatol

    Obama or Romney it doesn’t matter.Our President will do what Israel says.

  • Thanks Dr. Paul for telling the truth about why the housing crisis happened. Government intervention and manipulation for political goals (votes), not sound financial policy.

  • Thanks Dr. Paul for telling the truth about why the housing crisis happened. Government intervention and manipulation for political goals (votes), not sound financial policy.

  • What’s wRONg with Paul and his supporters is, the fact that his pie in the sky pipe dreams are unrealistic, and his ‘cult of personality’ is an element of the ‘lunatic fringe’. You’re a fraternity of misfits with a common pathology, nothing more, nothing less. And you’ll never be satisfied with anything in life …….ever!
    Now come on, tell me how wrong I am!

  • Name-calling is easy. Try making a coherent argument regarding what is wrong with Paul and his supporters.

  • MMA

    Name-calling is easy. Try making a coherent argument regarding what is wrong with Paul and his supporters.

  • Dreyahh

    The truth is Ron Paul talk s a good game. He’s got the right ideas about how this country should be run but he’s STILL a politician and politicians LIE.

  • Well, Ron Paul made a great deal of money over the years being a libertarian and selling coins, so he is part of the mega rich now. Would love to know how much he will be paid for TV appearances after the S–t hits the fan. I’d like to make some money off of being a libertarian since 1976.

    It can be done by buying my book, “Rebel In The Courtroom” available on Amazon and Kindle. Ron got wealthy off of being a libertarian and so did many others. I, however, who was in the fight on the ground and under attack haven’t received anything from the LP or so=called libertarians.

    I’m a retired lawyer and was famous at one time–my papers being archived at the Spencer Research Library at the University of Kansas. I think I can still give good speaches and would be worthwhile having involved in strategy, which has to go beyond electoral politics. Please buy the book and help replay a guy who was practically destroyed by the Establishment.

    Shelly Waxaman

  • write-in Ron Paul in 42 states. He is on the ballot in Maine and you are able to write-him-in in several states, such as California. Get informed about why we need to do this.

  • So we’ve established that their needs to be a worthy contender and the best of what’s available is not always good enough

    Johnson is a good man in the sense that he’s an honest man. But he doesn’t come across as being really intelligent and his policies don’t seem that thought through. Paul was a President in waiting, Johnson is more like a protest vote imo

    Also, i believe Ron Paul has the ability to convey to people that he means what he says, when i listen to Johnson i feel a bit sceptical

  • Ron Paul is the turd that missed the toilet.

  • I think you mean the weirdest bunch of patriots since the founding fathers. I am so that the idea of freedom and liberty is so weird to you. You must be incredibly happy to see the United States collapsing and become another tyrannical state. While you condemn Paul for trying to save the Republic, those of us who love freedom thank him for spreading the message of liberty and reminding us, that freedom isn’t free. It must be constantly fought for.

  • French Canadian

    “The definition of insanity is to do the same thing and expect a different outcome”.

    So STOP the insanity, stop voting for the two party system. Vote Libertarian! Vote Gary Johnson!

  • Well it’s obvious you’re a sideshow geek!

  • I’m not anti-American, I’m anti-weirdo! And you fuckin’ Paultards are the weirdest bunch of freaks to come down the road since the Yippies of ’68!

    • usfrog

      You are not aware of it, but you are a typical un-American liberal who, unfortunately, is uninformed and uneducated. After years of dumbing-down activity by our public schools, this is the result. Start with History 101, Economics 101, Political Science 101 and come back when you have learned something.