The House defeated the $700 billion bailout plan today and the Dow Jones responded by dropping 777 points–777.68 to be exact. This was the largest single day drop ever. Analyst and politicians may start blaming the people for being non-supportive of this bill but, the market had to fall. It was up or held steady because of speculation that a bailout was coming and due to the naked short selling bans. The market is now merely doing what it is supposed to do: find equilibrium.

TV pundits and Washington elites will try and convince us that we need to do something now more than ever. We should continue to do nothing to bailout Wall Street. Any bailout will only compound the problem and cause more economic problems. We are in the worse crisis since the Great Depression and if government doesn’t keep its hands off, the problem is going to get much worse.

The idea that we need to ensure prices do not fall is a ridiculous notion. By propping up home prices, gas and food prices will go up as well and no one wants that. Housing prices cannot stay at their current levels. In most of the country, home prices have already fallen through the floor from their highs. There should still be more to go. In big cities like New York, real estate prices have held pretty well. It can’t and won’t last.

It was due to the government passing legislation that forced banks to lend money to anyone and everyone so that everyone could “own” a home that caused this crisis. If you cannot afford a home, you should not be buying one. Using “creative” financing is not a good solution. I don’t like to point a finger at any particular party but, in this case, it was the Democrats who pushed through the Community Reinvestment Act. It was originally signed by Carter in 1977 but, not well enforced and amended until 1995. Essentially, it was President Clinton who presided over the increase for mortgage access in inner cities and distressed rural communities.

This act also promoted the use of Fannie Mae and Freddie Mac as a means to unload these mortgages due to their risky nature. Fannie and Freddie were GSEs–government sponsored enterprises–and now they are fully government owned. The two GSEs would repackage the mortgages as securities and sell them on the open market. Because Fannie and Freddie were government backed, their mortgage securities were given high ratings even though they clearly did not deserve it.

The point is, the government caused this horrible financial mess we are in. If left to free market devices, the amount of bad mortgages would have never risen to such levels. So when politicians–especially Democrats–try to blame this crisis on the lack of regulation, they are lying through their teeth or just plainly do not understand economics. Either of which is not a positive for holding public office.

The exponential rise of real estate prices is directly attributed to the massive amount of buyers that flooded into the real estate market due to government demanding everyone own a home and bid prices up higher and higher. Now because everyone’s houses went up in value, some decided it a good idea to refinance and borrow against their home so that they could take that vacation, buy that new car, or whatever. It was fun for several years until people started missing payments and foreclosures started taking place.

Housing prices started to collapse and now millions of Americans have upside down mortgages with negative equity in their homes. The party had ended and here comes the hang over.

Government bailouts and interference of market forces is the equivalent of drinking more and more alcohol in order to delay the hang over. It is logically not a good idea. You need to allow the alcohol to leave the body or in this case, allow the bad debt to leave the market. In fancy-pants talk, we need to liquidate the bad debt. It won’t be painless–hang overs aren’t painless but, they are necessary.

The economy is not in good shape and if we can keep the government from trying to “fix” things, it will start to improve a lot sooner. However, if we allow the government to intervene like it did during the 1930′s, the 16 year Great Depression is going to look like a walk in the park. We do not need government works projects or any other absurd creation of Hoover or Roosevelt.

While it is difficult to do nothing while people are suffering–you and me included, one must remember the ideas of economist Frederic Bastiat. We need to take into account the opportunity costs that we do not see. It may look like a good thing if government provides jobs because in the short run unemployment would be kept in check but, new and more efficient jobs and markets will not get the capital they need because government had directed capital elsewhere. That is exactly how a short painful recession can turn into a long painful depression.

The other danger of government intervention is that the only way government is going to be able to pay for the bailouts and works projects is to increase the national debt by borrowing or by printing more dollars. Both choices are incredibly bad. The current economic crisis won’t kill us, hyperinflation will. Having a lot of dollars is meaningless if they can’t buy anything. The Federal Reserve has already increased the money supply by 8% in the last week to try and “smooth” the gears of the financial system–it won’t work. It is only going to devalue the dollars we currently have.

It was a great victory for the American people today that this bailout of the rich and well connected was defeated. We cannot privatize profits and socialize losses. It is unlikely that Paulson, Bernanke, Bush, and co. is going to let it go. They will try to push some sort of bailout through as best as they can. The Senate will vote on the bill later in the week. This bill does nothing to benefit the people. We need to tell our Senators that we do not support the bill and demand that they vote against it.

Any Senator who votes for this bill should not expect to be re-elected. This is a grand robbery of the American people and I’m glad we didn’t stand for it. The massive public outrage over this bailout bill played a great role in its defeat in the House. Today was a victory for the people. May we continue the fight.

For more insights into the economic crisis and its inner workings, check out LewRockwell.com and The Mises Institute.

The first of 4 Presidential debates took place today and I watched most of it at Pace University in New York City. It was a very pro-Obama crowd as one would expect at a university in New York. I am against both of these parties because neither of them are speaking any sense and that was on display at the debate. I may have been the only person in support of a third-party candidate at the event.

The two candidates argued over a variety of issues including the economy and foreign policy. Neither of them would say whether they were in support of the $700 billion bailout. They just danced around the question when all they needed to say was yes or no. The majority of Americans are against this bailout bill and obviously neither of these candidates have the balls to take a stance knowing that the bill is unpopular and if they do nothing the economy will collapse. The economy will collapse whether this bill gets passed or not but, it is a lot harder to spin the collapse if they take a concrete position. I appreciated the moderator’s attempts to get the candidates to provide a solid answer but it was to no avail–in the end, McCain gave a half-hearted “sure”.

While some people may say that there is a real difference between these two candidates, this debate clearly demonstrated that there is not. McCain started talking about earmarks and pork barrel spending that–according to Obama–totaled $21 billion dollars. Clearly that is chump change with the Iraq War and all these bailouts and welfare programs. McCain then accused Obama of some million dollar earmarks for things of no matter while Obama dissected McCain’s tax cuts for the rich.

On the surface that might seem like a difference but, it is not. Neither candidate is willing to actually cut any spending. McCain proposed a spending freeze except for the war, veterans benefits, and welfare programs. My question it, exactly what spending are you freezing? The two biggest parts of our budget is the war and welfare programs. A spending freeze on useless things is not going to make a difference. Obama, instead of asking McCain the question I would have, argued against a spending freeze and basically danced around the idea of changing his plans to account for this $700 billion bailout if it passes.

Yea, they are so different. They both want to ensure that we continue spending ourselves into oblivion and maintain troops in 130 countries. Totally different candidates for sure.

On the foreign policy front, both candidates agreed that Russia was the aggressor and evildoer in the conflict against Georgia. I’ve written about that topic and clearly showed that the real story is that Georgia attacked two independent territories with a lot of Russian citizens and Russia merely protected its own people. McCain even told a story where he said he was in that area and saw a poster with Putin’s picture and a caption that read, “He is our President”. Yea, that is correct. The people living in that area associate themselves with Russia and not Georgia. Georgia attacked innocent people and Russia was just protecting them. Granted, Russia should not have invaded Georgia but, by no means is Georgia innocent.

The debate over war in the middle east was also nonsensical. Somehow we are soon going to attack Pakistan and Iran for no reason at all. Both candidates are willing to extend war into any and every country in the region. It is on this issue that I agree with Obama the most. We should leave Iraq and we certainly should never have gone in. However, I would take our troops out of every country and neither candidate is willing to consider that.

And of course, both candidates are trying to show how the American people are in support of their view on the war. Apparently, both candidates have a bracelet with a deceased soldier’s name on it. I don’t want to belittle the duty of our armed forces but, it was of some hilarity to see that both candidates had this same card under their sleeves and used it at the same time. Different? Looks the same to me.

All in all, the debate was a big waste of time. These candidates are not different. They are going to continue on the same course we are on now. There is no change and there is no maverick. And if you didn’t know–and a lot of people apparently do not–there are four other candidates in the running: Barr, Baldwin, McKinney, and Nader. You might want to consider a second choice because McCain and Obama is really the same choice.

I hate all kinds of central planning. I love free markets. The actions of the United States government in this past week and in the past months since our financial system have started its collapse has been the definition of socialism. Our politicians keep telling us that this is a necessary evil. It has to be done in order to protect our savings, our money, our economy. The reality is that they are destroying our savings, our money and our economy.

The Federal Reserve played chicken and decided to allow Lehman Brothers to fail to test the waters. The market responded by collapsing through the floor. This is what should happen and needs to happen. The Fed then decided they could not let AIG fail and bailed them out with $85 billion freshly printed dollars and an almost 80% stake in the company. So now the government owns Fannie Mae, Freddie Mac, and AIG. What if WalMart fails? Are we going to go to the government to buy groceries? This is ridiculous.

Our financial system was maybe a couple of days away from a complete meltdown. This would have been one of the biggest market crashes in history but, the government stepped in and estimated that they would spend half a trillion dollars or more to stabilize the markets. They are going to set up an entity similar to the RTC of the Savings and Loan crisis that would buy all the bad debt from all the banks. Who is going to own this bad debt? You and me. I don’t know about you but, I don’t like making bad investments. Especially not ones that I have no say in.

So now we are falling into the hellhole of socialism. There is nothing remotely good about socialism. The theory sounds nice but, the execution has always been the same. I don’t care if you want to redefine what socialism is to keep it a theory–it is never going to work. Central planning–regardless of the form–is never going to work.

Government has no money. They don’t produce goods and therefore cannot produce wealth. They can only steal from us. That is what they are doing right now. They are stealing our money to make sure that their friends on Wall Street don’t lose their shirt. Instead, we will lose ours. I don’t think you really support this. What is your benefit that Fannie and Freddie were “saved”? That AIG was “saved”?

If you have a mortgage that you couldn’t afford, you now still have a mortgage you cannot afford and on top of that, the dollar’s value is about to fall through the floor. Maybe you worked for Fannie, Freddie, or AIG and might have been out of a job if they collapsed. You’ll find a new one–yes, you will. Instead, we are going to put this giant band aid on the problem to push the day of reckoning later. It doesn’t help you. It is just going to make sure that you hurt harder later.

If the government wants to help America and the American people, they can pay off our mortgages. They can eliminate the interest on our credit cards. Pay our student loans. Get the people out of debt. How about, we bail out the American people? Why are hard working American people bailing out these giant corporations so that their executives can get their millions of dollars in salaries? I don’t want to pay their salaries. They made bad choices, they should live with it.

Millions of Americans made bad choices to buy a house they couldn’t afford. Bail them out. If we are going to have bailouts, we should bailout the American people. Not the multinational corporations.

The economic blow back of these policies are predictable. The ban on short selling of almost 800 financial institutions is market manipulation. The markets are going to go up in what will appear to be a bull market. There is no bull. We have not hit a bottom of any sort. The Dow Jones was more likely to have tanked below 10,000 than to have hit any bottom. With the government announcements of the biggest bailout that we have ever seen, the market responded by skyrocketing. The volatility of this past week could have either made you a lot of money or lost you a lot of money.

No one knows when this fake bull is going to take off the mask and reveal it is really the nastiest bear we have ever seen and send the market sinking like a rock. Playing the stock market now is exceptionally dangerous but, it can also make you an enormous return. Because of this “temporary” ban on short selling, the market will fall through the floor when it decides to correct. The officials say that they want to restore equilibrium but anyone who understands economics has to laugh at that. Eliminating short selling is doing the exact opposite of creating equilibrium–it is ensuring we stray as far away from equilibrium as possible. So when it hits the market that the stocks are not worth this much–and they aren’t–it will snap back like a rubber band.

Our markets are going to collapse. It is hard to determine when with all this government interference and manipulation but the law of economics cannot be suspended. If we really enter into a full blown form of socialism, we will all be equally poor in no time flat and our markets would have collapsed because of it. The alternative is that we stop bailing out the corporations and we enter into an incredibly painful depression. It won’t be fun but, at least there will be a future option of being better off. Socialism ensures that such an option won’t exist–there will only be one option: equality in the sense that we will all be equally poor.

To be able to say that John McCain or Barack Obama has two different agendas with a straight face should grant one an Oscar. While Obama has been campaigning under the banner of “change” and “hope” and other undefined, substance-lacking terms, McCain has hijacked that same message. Sarah Palin as VP gives McCain the clout to do that.

Now they are both campaigning as candidates of change. Ironically, neither of them is going to change anything. The Republicans and the Democrats–to paraphrase Pat Buchanun–are but two wings of the same bird. I’m not sure how much more evident this needs to be. Even the campaign messages are identical now.

All anyone can talk about is change. The American people want change. We know that the path we are on is a death trap. We can feel that things are going the wrong way. The two major parties are well aware that the people are displeased with what they are doing but, they don’t want change. To them the question is: why kill a good thing?

The politicians and lobbyists benefit from our current system. The American people are suffering. With this understanding in mind, why would we think that electing more of the same people who are in power and enjoying the perks of the current system is going to change anything? They won’t. Obama-Biden and McCain-Palin is the definition of more of the same.

The Democrats will try to bombard us with messages of change and that we can’t have another term of a Bushesque Presidency. The Republicans will tell us that they are the real party of change and that they have kept America safe since 9/11.

The truth of the matter is that we can’t have another Bushesque Presidency so we can’t elect McCain or Obama. Obama is not going to be unlike Bush. Bush was not unlike Clinton who was not unlike Bush and the chain continues backwards with a few exceptions. The two parties will tell you otherwise. They will tell you that they are different in every way. These two parties are responsible for driving the country into the cataclysmic hellhole that is staring us in the face.

Neither party will change anything because it is in their best interest to keep things the same. The Republicans aren’t any better at protecting us from terrorists than the Democrats–they are both bad at it. Invading countries, starting wars, or voting for the funding the wars is not how we keep America safe. That is how we create more terrorists with an even greater hatred of America.

We are in Iraq not because President Bush tricked us into it. We are in Iraq because Congress gave up their power to declare war. Congress had every opportunity to say, “no, we are not going to war”. Instead, they gave the President authorization to go on ahead. Not only did the Congress give up their duty to declare war, they then proceeded to continuously fund the war. If the Democrats are interested in stopping the war they can stop funding it. They won’t. Instead, they put other things into the bills for their benefit and then vote to pass them.

These politicians don’t care if American soldiers are dying by the tens or thousands as long as they can perpetuate this system by diverting blame and spinning the news.

Obama is not change. McCain is not change. As long as we believe that we have to vote for either a Democrat or a Republican, there will never be change. With an Obama Presidency, we will continue to increase the size of government, have military bases in 130 countries, start new wars, and increase the national debt. McCain will do the same thing.

Other issues are meaningless compared to these issues. It is these issues that have driven us into a hole of epic proportions. They are the reasons why we feel things are headed in the wrong direction. The only candidates that are even interested in these important topics are third-party candidates. Instead of going to the voting booth in November and picking between a giant douche or a turd sandwich, go and vote for an independent candidate who is really about change. Each one of them is better suited to be President than John McCain and Barack Obama combined.

It was just a matter of time before Fannie Mae and Freddie Mac became nationalized. Secretary Henry Paulson had pledged the full faith of the United States government behind these two bankrupt institutions to try and calm investor’s fears. Fannie and Freddie lost over 90% of its stock value since the beginning of the year and is holding onto at least a trillion dollars in bad mortgages–$5 trillion in total mortgages.

Paulson is expected to make an announcement this Sunday to take over the two troubled institutions. This is a bailout of epic proportions. The biggest losers in this deal are the taxpayers. These two semi-private institutions decided it was a good idea to buy all these mortgages. They took the risk and now they should bear the responsibility–not us.

It is expected that the vast majority of the loans on Fannie and Freddie’s books will be default and this will only end up costing taxpayers tens of billions of dollars. The accuracy of this estimation is probably low considering the government estimates of the sub-prime mess. The worst outcome of this bailout is the future bad loans that will be created because the government is backing all the loans.

If this housing crisis has been bad, it is only going to get a lot worse if banks can continue to make bad loans knowing that Fannie and Freddie will have the money to buy them. There are many who argue that allowing Fannie and Freddie to fail is worse than bailing them out. That is simply not the case.

It will be bad for a short while if we let them fail and credit becomes tighter–a lot tighter. The long term result is that the economy gets back on its feet faster and we can start seeing some real economic growth. Politicians don’t look into the future. They only look as far as the next election cycle and by no means do they want to be the ones in charge when all hell breaks loose so they will prolong it as long as possible.

So while we the government continues to provide socialism for the rich. The rest of us will suffer with a lowered standard of living.