Friday, April 03, 2009

Two Great Books for Americans: "Meltdown" and "Liberty and Tyranny"

I'm reading two great books simultaneously. It's tricky, but that's why I have two eyes and two hands.

One of those books is "Meltdown" by Thomas E. Woods, Jr. It's an explanation of the causes of the current financial crisis and why the bailout will make things worse. Woods writes an easy to follow, logical analysis and supports it with facts and examples. The federal government caused the financial crisis by insisting that mortgage companies and banks loan money to poor credit risks based on their ethnicity rather than their ability to repay loans. Fannie Mae and Freddie Mac further compounded the problem by buying the subprime mortgages from the mortgage companies and banks so the latter could make even more subprime loans. Fannie and Freddie then securitized the subprime loans and sold the mortgage-backed securities to investors, i.e. banks and pension funds.

George Bush did his share of the damage by initiating lending based on "no down payment" so that even more citizens could buy “the American dream.” Note: bad ideas by Republicans aren’t any better than bad ideas by Democrats and are just as damaging. That’s why we Republicans need to elect conservatives, not liberal or “moderate” big-government Republicans like George Bush or John McCain.

Finally, the Federal Reserve Bank (the Fed) exacerbated the problem by keeping the interest rate artificially low. Easy credit for one ethnic group soon spread to everyone, and home buying proliferated, fueled by speculation and the belief that the price of homes would continue to rise indefinitely. All of this activity drove the prices ever higher.

When interest rates again began to rise, payments on adjustable rate mortgages also rose and many owners couldn’t make the payments and home loan defaults began to soar. This put a lot of houses back on the market, and an increase in supply generally causes a decrease in price. Soon, thousands of mortgages were collateralized by homes worth less on the market than what was owed on the mortgages. Many people, particularly those with nothing to lose (the no down payment folks) just walked away.

The result of this was a major chain reaction throughout the economy: banks and other lenders failed because payments on their loans stopped coming in; AIG failed because it had insured many of these mortgages and too many of them defaulted all at once, overwhelming AIG’s ability to pay. Thousands of pension funds that were heavily invested in mortgage backed securities lost value, debilitating many people's 401K's.

The major lesson that should be learned (but won’t be learned) is that the government needs to keep its big rotten hands out of the economy. Forcing private industry to finance bad loans and artificially deflating the interest rate was terribly damaging to the economy. The bailout addresses none of these problems and will make the recession longer and deeper. Things will get worse for some time to come. Hope you are ready for hard times.

The second book, "Liberty and Tyranny" by Mark Levin, is a best seller that is going viral and is selling out everywhere. I am only a third of the way through the book so can't fully opine on its contents just yet. Here's my impression so far: Levin describes the country America was intended to be, how the three branches of government were supposed to work, and how the Constitution has been eroded over time. Leftists, or as he calls them, Statists, have slowly but steadily shifted power away from the states to the federal government. Just reading it raises my ire.

So I will spend the lovely spring weather this weekend nursing a cigar in the backyard while I absorb the wisdom of these two authors.

Oh, I almost forgot, check out Robert Ringer's latest articles (follow the link in the left sidebar) on the rise of fascism in the 1930's and its parallels to today. Carol at No Sheeples Here blog also has a great post on this same subject.

Obama is looking more like a brownshirt every day and is following a similar path to absolute power as did leading fascists before him.

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