Yo,

As I’m sure most of us are aware, The mortgage giants Fannie and Freddie Mac will be getting a government bailout from the Federal Reserve. This precedent of bailing out ailing private companies was established just this year with the Bear Stearns bailout. There will be an additional bailout of the Housing industry itself if the Senate and the House pass their Foreclosure Prevention Act (i.e., Mortgage Bailout, i.e. you lowly worker and I government wage-taker. You be happy I take your money or else…) Why is the Federal Reserve doing this? Isn’t it supposed to be a lender of last resort for banks? Well, that’s what I thought too.

It seems that the Federal Reserve, rather than providing for the stability of the market has become the controller or safeguard of the market. When it was restricted to controlling banks, that was bad enough. Aside from the subprime mortgage issues, why do you think banks were so ready to lend out money and mortgage companies had such money to give out? The Federal Reserve loaned out at such low rates, the housing bubble was unstoppable. Everyone was getting a mortgage.

Now, the financial institutions known as Freddie and Fannie will be bailed out by the Government. Ben Bernanke has said so. And it is he, not you, that is in control of the money supply and apparently where you’re taxpayer, inflated dollars go as well. Chris Dodd when interviewed by Wolf Blitzer said the other day that there was no reason to question the soundness of Freddie and Fannie. Well, in a way he’s right. The Federal Reserve will make sure they are sound, with the help of you and I and the declining, inflating dollar. Don’t take a trip to Europe anytime soon as the value of the euro/dollar exchange rate is going to get much worse if this goes through.

I find it amusing that the Federal Reserve is calling for more stringent loans standards and rules on the mortgage market. They basically have stated among other regulators that lenders would have to make sure that the borrowers were sufficiently able to pay them back. Wow! What a revelation. When I lend money, I generally seek out those who will not pay me back.

That’s finance 101, and everyone knows it. The only reason Fannie and Freddie loaned in such a reckless manner is because they were not held by the Government to the same rules other institutions were held to in conducting loans and there has always been an implicit understanding that the Federal Reserve will guarantee their solvency. The very same institution that set up the fall of these mortgage giants is now blaming them and pointing out solution (oh yeah, and giving them money to help them out). I also heard that Ben Bernanke and his crew of merry mortgage men will write papers for you in school to as well. They’ll finance your research, do it for you, and when you get a bad grade to their slipshod work they’ll pay off your teacher for an “A” with some treasury bonds. Life is beautiful.

I’m not honestly blaming Ben Bernanke here. The world he has stepped into as a Federal Banker is a world do far removed from the Austrian School and a true understanding of the market and money that it is impossible to hold him to the same standards we would hold an Austrian. He and the rest of the banking community are trying their best to keep the system from crashing down around us by temporary fixes to problems which occur from inflationary monetary policy and excessive federal taxation. True Austrian scholars claim that the only solution to a recessionary economy is to cease inflationary policy and let the economy go into free-fall, thus allowing it to heal in the shortest period possible rather than dragging it out over a long period of time with quick-fixes, like the Fannie/Freddie Bailout. In theory this sounds good but in practice I am undecided and lean towards helping the system along and slowly bringing it back to “normal”, or basically scaling the Federal Reserve system back until it essentially no longer exists. I am most fond of Milton Freidman’s plan to simply inflate the money supply according to GDP rate. While Bernanke is not a Freidmanite, he is trying to fix things.

I AM blaming men like Keynes, who helped to create this system in the first place. I have said this before and I will say it again. Keynes rationale for his defective economic and monetary policy were that we were “all dead in the long run”, and that it only mattered if we were successful in the short run. Well, thanks a lot pal. We are living in the long run, and we are having trouble filling our tanks and getting mortgages and trying to break into the job market. If any of you are seniors in college out there, start working NOW to ensure you have a job when you graduate, as it will be extremely difficult to break into a recessionary market.

This is a bad move on the part of the Federal Reserve, and it means that we all have to tighten our belts and it will be harder to make a living out there. But fear not. This is similar to the 1970’s recession (although possibly to a greater extent), and people made it through that. Hopefully in a few years we will all see the return of a prospering economy and be alert enough and intelligent enough to A) help bring back more common sense and a market that is truly free and B) prosper and catch the wave of REAL prosperity so we may personally help any ailing friends, family members or communities. One of the things government taxation does is it takes away the incentive to give. Who wants to help the homeless when an average 40% of salary is scooped up by the government?

I urge you all to learn the language of economics, avoid pitfalls for your own protection such as subprime mortgage debacles and whatever the next risky business venture is, prosper and do well, and never forget the less fortunate. Take care!