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.