Should the federal government have bailed out American International Group?

No

1 of 9

by Joseph Garceau

Write now Print Invite a writer™ Add to Favorites RSS Feed Contact this writer

Once again the US Government has perpetrated one of the biggest frauds in history. Once again it is directed toward the American people. The recent bailouts of Fannie Mae, Freddie Mac, and AIG provides some relief for the troubled financial industry. However, not nearly as much relief as the State will receive by finally being able to cast off the burden and restraints of constitutional government. The government has not only expanded its powers by taking a leading role in the economy, creating monopolies by merging with private businesses, and taxing wealth and redistributing from one group to another, they have convinced us that it is necessary and for "Our own good".

Some of the explanations for all of these bailouts may at first appear legitimate. It is said that "property values will go down if people vacate their homes in droves"? Yes, property values will go down if people have to foreclose on their homes. This is necessary because property prices had been bid up too high in the first place and must come down. Who says we need high home prices anyway? We complain about high food and gas prices and want them to come down. But, for some reason home prices should remain high forever? What about all new homebuyers must they be forced to pay artificially high prices for a new home? Prices should never be fixed arbitrarily high or low but should be decided by the free market.

People who paid such high prices for their homes made an incorrect business decision. They viewed their house as an investment and were counting on real estate prices to keep on increasing. Well, all investments carry with them a certain amount of risk. You can gain or lose money. If home prices had continued to sky rocket and people who owned homes stopped working and just lived off of the equity in their homes should the government have stepped in and confiscated their profits? No, so why should the government step in and absorb their losses?

But if these financial companies go out of business then wont we lose the thousands of jobs that they create? Make no mistake, there will be many people who lose their jobs in the financial industry. But, there will be many more who will lose jobs in all other industries if we allow the government to keep propping the financials up. The Government does not produce anything. The only wealth or capital that the State can provide is that which it confiscates through taxation. So, whatever the State provides to one group it takes from another. All other industries will have less money to invest and employ people if their profits are taxed away.

Imagine, a situation where millions of people purchased a big SUV when gas prices were low. They predicted that the gas prices would probably not go any higher. And then later on down the road gas prices rose. What sort of conclusions have been drawn from situations like this? That these people wouldn't be able to drive to work everyday! Then they wouldn't be able to make money and buy things! They would have less to spend on consumer goods and every industry would suffer! They might have to move out of their big house and start renting! Then property values would go down for everyone! Government must step in and save us! This is the same economic nonsense that is prevailing wisdom today in the financial markets.

We have seen this sort of thing happen. People who bought big gas guzzling vehicles when prices were lower now just have to start economizing when prices have risen. People might take public transportation, drive less, buy a new fuel efficient car, cut out some other luxuries, reduce their consumption and (HORRORS) start saving. But somehow Secretary of the Treasury Henry Paulson and Fed Chairman Helicopter Ben Bernanke along with all the Keynesian "experts" on the Government payroll would expect us to come to a different conclusion.

They would have us believe that the Government must step in and subsidize all these pour souls with SUVs. The Government forcibly through taxation must take money which could be directed to other productive things and has to give it to an inefficient industry. The Government must next bail out Ford and GM because they suffered losses and made cars that werent fuel efficient. And the Government cannot allow new young companies to emerge because they don't have the advantage of government subsidies provided by the taxpayer. They're not "Too big to fail". So is it an economically viable solution to keep subsidizing, thus encouraging an industry that misjudges the market and wastes scarce resources? The Government thinks so!

They have also said that if property values are allowed to go down it will decrease the property tax revenue and thus Public schools will receive less funding. So how were schools being funded before property values were bid to astronomically high prices? How did we educate our children before real estate prices were expected to increase %20 a year till the end of time? The values of property were artificially bid up so high because the Federal Reserve increased the supply of money and lowered interest rates making it more desireable to be a debtor than a saver. With low interest rates banks were finding it more profitable to borrow money and lend it out. The usual standards for buying a home with 20% down and good credit history were replaced by 0 down, interest only adjustable mortgages. Due to the relaxed standards the number of buyers in the market increased, bidding the prices of the stock of homes up.

Now it has been realized that these submarginal buyers should not have been part of the real demand for the supply of houses. It is as if you were at an auction house bidding on a rare painting with no means to pay for it if you won the bidding. You would be able to bid the price up and win but when it is discovered you can't pay the price will fall to the next available bidder who can pay. This is what must happen to housing prices. We should not be bamboozled by the idea that public schools will not be funded if property taxes fall due to decrease in housing prices. This logic would suggest that you continue to pay the same amount of income tax even if you receive a pay cut at work.

The Government has no business in business. The Government has a dismal record as they have no profit/loss motivator. They can recoup any losses through taxation or inflating the money and being the first ones to spend it before prices rise. There is no system like the price system that the free market provides to signal how to properly allocate resources. What makes people think that the US Government is any more financially responsible than any of these companies? The Government's incredible business savvy has led us to an 11 trillion dollar debt and we expect them to save us?

Let us ask ourselves this question "Who benefits if I believe what I am being told"? These wreckless and irresponsible monetary policies will impoverish the masses and lead our nation to financial ruin. They must end, not just because it is economically unsound. These policies are opening the gates to the Hell of Socialism and Fascism. As Ludwig Von Mises said " a wealthy man can afford to make unwise decisions longer than a poor man can." I am afraid that we cannot afford any longer to keep making such foolish decisions.

The expansion of Government power usually comes at a loss of freedom to the individual. I used to think I had the right to "Life, Liberty, and Property." But now I know that my government has the power to steal the fruits of my labor and give it to someone who is too big to fail. But, I guess its for my own good.

Learn more about this author, Joseph Garceau.
Click here to send this author comments or questions.