Time, Not Interference, Corrects the Problems

For the third or fourth time (I’ve lost count), the Bush Administration is announcing another “solution” to the current credit crisis. This is another prime example of why politicians remain virtually useless. They are reactionary versus proactive. This morning, Treasury Secretary Hank Paulson is set to announce the biggest set of reforms and regulation since the Great Depression.

Paulson stated in his remarks, “"I do not believe it is fair or accurate to blame our regulatory structure for the current turmoil.”

What a priceless statement. A regulatory structure is put in place for the sole purpose of preventing abuse in the system. If the politicians were paying attention instead of conveniently ignoring advertized teaser rates, no documentation loans, adjustable rate mortgages, and the mortgage industry giving consumers loans without money down, we wouldn’t have this problem.

However, this is the problem. The politicians don’t make the tough decisions when we need them. They make the popular decisions that serve the masses (and their own political agendas) on a short-term basis.

In 2001, in order to prop up the economy following 9/11, Bush aggressively cut taxes during a time we couldn’t afford to do so. The Federal Reserve Board aggressively reduced interest rates that fueled a housing bubble. As a result, we had six years of debt-induced economic growth.

Instead in 2001, the Bush administration should have allowed the excesses from the 90’s to work themselves out through the system. Yes, it would have been tough. However, not as tough as a situation we are about to face.

Now, once again, you have the Bush Administration stepping in and trying to bail out every individual who has made an irresponsible decision. People should pay their dues, markets should be allowed to function on their own, and time should be the solution to the problem.

The time to act was years ago. Politicians should have put a stop to predatory lending and stopped the abuse in the mortgage industry. The politicians should have worked to put laws together that would protect consumers from themselves. Unfortunately for all of us, that solution wasn’t politically convenient. For the politicians, it is much more convenient for consumers to spend at all costs. If that means getting into debt over their heads, then that is what needs to happen.

Have you ever really heard a politician encourage people to save? Of course not! That would be the best thing for the average American.

I doubt that anything the politicians put on the table is going to matter anyway. First, it will go through endless months of political debate. Second, there is really very little that they can do. Bailing out America (even though they would like you to think differently) is not viable option. Finally, this is a deflationary debt contraction we are experiencing. Time is our only option.

If the politicians figure out some type of bail-out and successfully interfere, the problem will just be pushed out further into the future. I don’t think anyone wants to make this problem any bigger.

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