Now that our Representatives in DC are done abasing themselves before political logic at the altar of “Being seen doing something, no matter how destructive, is better than being seen doing nothing!”, let’s take a look at what just happened.

Stripped to essentials, you and I are being forced to buy something the current owners don’t want and which destroyed individuals and companies which owned even some of it. Government believes the magic pixie bailout dust which will ensure success is assuming responsibility for all of it.

Wall Street holds a bag full of bad mortgages. So bad, owning them has already destroyed companies with even a mix of good and bad ones. Government is going to buy just the bad ones! But Government has no money with which to purchase mortgages, good or bad, that doesn’t come from taxpayers. Your Government is buying, in your name and with your money, mortgages the mortgage experts know are bad, don’t want and wish they had never made.

“Unknown” is the best description for the prices taxpayers will pay for these mortgages. It is currently unclear how the value of the bad mortgages will be determined. Wall Street will want as much as possible to reduce their losses. Government has little incentive to realistically assess their value. This would seem to assure a good deal for Wall Street and a lousy deal for Main Street. The Director of the Congressional Budget Office, Peter R. Orszag, told Congress that in plain terms in a recent hearing. (Orszag’s comments appear between 22:30 to 23:00)

Government believes it will perform better than the Market. 337 legislators with nothing at stake but re-election feel better qualified to risk taxpayer’s money and future than the 200,000,000 taxpayers either opposed to or unsure of the plan. By what measure are they more qualified? By virtue of being able to ignore the people and impose their will on them. But being powerful doesn’t make one right.

Bailout opposition drops dramatically if one assumes Government is making a sound investment. Tell taxpayers they’ll get their money back when the homes they’re buying are re-sold and many more favor the deal. But will that actually happen? All we have are assurances on that point. Government doesn’t know it will work out well, they hope and assume it will.

There are some great ideas for Private Sector involvement. That few investors are clamoring to be let in on the action is telling. However, if profiting from bad mortgages was the sure thing Government needs it to be to garner public support, we wouldn’t need the Bailout. The Private Sector would be lined up to do it. That they’re not undermines the Government’s contention this is a low cost, no cost, or even profit making venture.

Interestingly, the Bailout isn’t about the Housing Market at all. It’s about the Credit Market. Holding bad mortgages is a threat to financial health. In today’s volatile market, even the hint of weakness spells disaster. No one knows how much in bad mortgages anyone else is holding so no one is extending credit. The borrower may be destroyed in mere hours by a loose word or a breeze on their house of cards. The Government solution is to buy up all the bad mortgages. Freed from worry about risk, lenders will begin extending credit again. This is exactly the solution the Market would have imposed had it been allowed to with some differences in implementation.

The Market would not make taxpayers responsible for the sins of others. It would have relaxed tension in the Credit Market by making those responsible for bad lending decisions endure the consequences. This would dump bad loans on the market at a low price for investors to see as good investments which they then begin buying. As the Market cleansed itself confidence between surviving lenders, demonstrating unquestionable financial soundness by virtue of their survival, would increase and the Credit Market would loosen. This is essentially identical to Government’s plan while taking a little longer. Government is underscoring the soundness of Market principles without being willing to permit Market processes.

By far the worst result of the Bailout is deeper Government intrusion into the Private Sector. The crisis was not a failure of the Market. The Market expects there will be downturns, corrections or cutbacks at times. No one likes them, but only certain forms of Government abandon responsible behavior to avoid them.

We used to have wise and responsible Government; limited and small, it taxed little and meddled less. That allowed a Free Market in a truly Private Sector to transform a wilderness into the world’s richest economy in mere decades. The inertia of that Economy carried us forward despite the low speed, high drag baggage of Woodrow Wilson’s Socialism, FDR’s New Deal and LBJ’s Great Society.

But even that powerful engine is not immune to the braking action of constant friction. Today Government spends hundreds of billions monthly in unconstitutional entitlements. Crying that a minority will fail in their quest for success, it impedes the majority’s quest, ignorant that a single success does more than a single failure can wipe out. Left alone, we would provide far more for the least of us than the pittance Government doles out for votes. But that garners no power for Government.

Barack Obama and Democrats have already told us what they intend if elected. They plan even more Government regulation and control, weakening even further the economic engine that is Capitalism. They won’t be satisfied until the engine stops altogether.

I’m not convinced we’ve reached the point of no return in our rush to self destruction at the hands of Socialists and Central Planners. But neither am I convinced we have not. The bailout is a huge step in that direction. Granting Democrats control of all 3 branches of Government would be another. And I’m not sure Americans and the GOP is up to the challenge of stopping it. For now, work like it all depends on you and pray like it all depends on God. In the final tally, it does.

Blue Collar Muse