HIGHLAND, UT | 1 April 2008 | Economic policy is often shaped by the emergencies of the day. As far back as the Civil War (1863), our current policy situation began to take shape. This is followed by several others through America’s history until we stand today, faced with the Federal Reserve possibly increasing its power, an act one Accent Radio Network talk show host compared to a fire department arriving at a blazing fire only to hook their hoses to the nearest gasoline station (refer to Jerry Hughes, “Straight Talk” March 31, 2008). Today’s proposal by Secretary Henry Paulson of the Treasury Department’s “regulatory overhaul” explained history thus:

The regulatory basis for depository institutions evolved gradually in response to a series of financial crises and other important social, economic, and political events: Congress established the national bank charter in 1863 during the Civil War, the Federal Reserve System in 1913 in response to various episodes of financial instability, and the federal deposit insurance system and specialized insured depository charters (e.g., thrifts and credit unions) during the Great Depression. Changes were made to the regulatory system for insured depository institutions in the intervening years in response to other financial crises (e.g., the thrift crises of the 1980s) or as enhancements (e.g., the Gramm-Leach-Blily Act of 1999 (“GLB Act”)); but, for the most part the underlying structure resembles what existed in the 1930s (Treasury Financial Blueprint, march 2008, p. 2).

This practice is highly dangerous. Trying times when emotions are high and fear abounds, call for measures that usually see the rights of man gleefully surrendered to a collective with a gun in exchange for what the individual thinks is security. Our Founding Fathers plainly taught, however, that security and freedom are usually opposites of the same pole. Yet, over the last 80 years, the American public has been skillfully duped into craving security almost to the point of addiction. Today’s news by both the Treasury Department and the Fed reveals one more link in the chain designed to carefully lead America into the warm hands of socialism.

Key Points

• Though common belief says there are natural times in economies where severe instabilities reign, government intervention is the major contributory factor.

Today, government measures constitute the major impediments to economic growth in the United States. Tariffs, and other restriction on international trade, high tax burdens and a complex and inequitable tax structure, regulatory commissions, government price and wage fixing, and a host of other measures give individuals an incentive to misuse and misdirect resources, and distort the investment of new savings. What we urgently need, for both economic stability and growth, is a reduction of government intervention not an increase (Friedman, 38).

• There seems to be a social cycle where crisis breeds fear, which breeds emergency government measures to save the day, which restricts the ability to exchange, which breeds more crisis.
• Each time the government steps in to save the day, a little piece of freedom erodes from the individual.
• The Treasury Department’s recent proposal to “modernize” the regulatory processes is simply one more step in the above mentioned cycle. Secretary Paulson does explain that the study began before last summer’s crises began and that most measures would not be put in place until after the current crisis has subsided. He has also attempted to explain that the current proposal is not to increase regulations, simply streamline them. However, the Treasure Proposal does call for a new department: the Mortgage Origination Commission (MOC). In the proposal’s words:

…a new federal commission, the Mortgage Origination Commission (“MOC”), should be created. The President should appoint a Director for the MOC for a four to six year term. The Director would chair a seven-person board comprised of the principals (or their designees) of the Federal Reserve, the OCC, the OTS, the FDIC, the National Credit Union Administration, and the Conference of State Bank Supervisors. Federal legislation should set forth (or provide authority to the MOC to develop) uniform minimum licensing qualification standards for state mortgage market participants. These should include personal conduct and disciplinary history, minimum educational requirements, testing criteria and procedures, and appropriate license revocation standards. The MOC would also evaluate, rate, and report on the adequacy of each state’s system for licensing and regulation of participants in the mortgage origination process. These evaluations would grade the overall adequacy of a state system by descriptive categories indicative of a system’s strength or weakness. These evaluations could provide further information regarding whether mortgages originated in a state should be viewed cautiously before being securitized. The public nature of these evaluations should provide strong incentives for states to address weaknesses and strengthen their own systems (Treasury Financial Blueprint, March 2008, p. 6-7).

• This increases the federal government’s powers beyond their original intent, which is a violation of many of the Principles of Prosperity™. First by taking the rights away from individuals (Principle 12); second, by placing those regulations within the confines of punitive action (Principle 11); third, by relieving each individual of his stewardship to increase his/her own Human Life Value by increasing his knowledge of the actions performed. (Principles 3 and 4).
• Furthermore, this process of crisis-fear-government intervention-relinquishing of personal freedom, etc., distorts the recognition that God is the author of prosperity and places that authorship on government entities. This causes the individual to think that the pathway to prosperity lies within the permissions set by government rather than recognizing that principles govern these processes and that God does not play dice with the universe. The universe is one of order and predictability, not one of chaos and confusion.
   

Conclusion

The current financial crisis is one which the government cannot curb or stave off. Government can only shift the thrust of the crisis’ pain upon different groups of people. This is unjust and unnecessary. Companies like Bear Stearns that have recently revealed their woes do not need a bail out. Home owners who are currently unable to pay their mortgages do not need a government-mandated stay in the foreclosure process. Banks that foolishly loaned money to people they knew would not be able to pay do not need government bail outs. The country does not need more regulation. The government (that’s every individual, from the President, the bureaucrats, Congress, and common citizen alike) needs to understand that the best form of regulation—according to correct, irrevocable principles—is the crisis we are now in. If allowed to plod through this crisis, the bankers, investors, home owners, and others will learn to regulate themselves in the best possible way. Take that away by allowing government to save the day, and all we get is a perpetually dumb society that won’t be able to solve the next crisis, or the next crisis, or the next, and so forth.
 

Action Steps

1. Read Milton Friedman’s chapter on “The Control of Money” in Capitalism and Freedom.
2. Discuss with your friends and neighbors the historical nature of the crisis pattern above and resolve to control your own fear in the face of today’s matters.
    

Resource(s)

Lawder, David and Mark Felsenthal. “Treasury pitches regulatory overhaul.” Reuters, March 31, 2008.

“U.S. Treasury Department. “The Department of the Treasury Blueprint for a Modernized Financial Regulatory Structure” March 2008
Friedman, Milton. Capitalism and Freedom, 1962, Chicago, University of Chicago Press

MRFC Principles:  (1, 3, 4, 11, 12)