Alan Cheslow

The following is the latest message that I am sending to my representatives. Thanks to campaignforliberty.com, lewrockwell.com, and mises.org for providing much of this content.

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I don’t believe that you can vote in good conscience for any version of a banking bailout if you truly understand the root cause of our current economic problems and the consequences of not allowing a free market to function normally. 166 leading economists, including 3 Nobel Prize winners, agree with me (http://faculty.chicagogsb.edu/john.cochrane/research/Papers/mortgage_protest.htm).

What’s clear is that a bunch of financial institutions have made mistakes and lost money. What’s unclear is why anyone (other than the owners and managers) should care. People make mistakes and lose money all the time. Restaurants fail, grocery stores fail, gas stations fail. People pick the wrong stocks, they buy the wrong cars, and they marry the wrong spouses without turning to the Treasury for bailouts.

So what’s special about banks? According to what I keep reading, it’s that without banks, nobody can borrow, and the economy grinds to a halt.

Well, let’s think about that. Banks don’t lend their own money; they lend other people’s (their depositors’ and their stockholders’). Just because the banks disappear doesn’t mean the lenders will. Borrowers will still want to borrow and lenders will still want to lend. The only question is whether they’ll be able to find each other.

The Paulson Plan is a heist. It is a grand scheme in which the public will end up owing hundreds of billions of dollars to holders of new debt claims issued by the US Treasury. The plan won’t “prop up” asset values and it won’t provide any real stimulus to the economy.

Despite the dire warnings — coming from the same folks who brought us the Iraq invasion to remove WMD — there is no threat of a financial meltdown. If Goldman Sachs failed, the sun would still rise the next morning.

A better way to fix our economic problems is to allow entrepreneurs the freedom to allocate resources in accordance with society’s priorities. In this sense, the best rescue plan is to allow the market mechanism to operate freely. Allowing the market to do the job will result in some activities disappearing all together while some other activities will in fact be expanded.

This is precisely what a government rescue package will prevent from happening. The government package is not going to rescue the economy, but it will rescue activities that the economy cannot afford and that consumers do not want. It will sustain waste and promote inefficiency, draining resources from growth and efficiency.

Most commentators have accepted that the root problem of the current financial crisis is the lack of proper control over mortgage lending. But the out-of-proportion explosion in the mortgage lending didn’t occur out of the blue. Without the aggressive lowering of interest rates by the Fed, mortgage lending couldn’t have exploded.

The Fed’s loose policies are the crux of the problem. So rather than blaming the symptoms, what is required is to let the market work and close all the loopholes that allow the creation of money and credit out of thin air.

What this country, and your constituents need are the following:

1.) End the Bailouts - Congress must revoke the Federal Reserve’s authority to bail out failed businesses at our expense.

2.) Cut Taxes and Curb Regulation - If we really want to stimulate businesses and revive the market, we need to cut corporate and capital gains taxes, spurring investors to come back to the market and making it easier to attract new workers and clients.  It is also time to end failed legislation like Sarbanes-Oxley, which has crippled capital markets, diminished our competitiveness, and greatly harmed small businesses.

3.) Reduce Spending - We must freeze all non-entitlement spending by the federal government at current levels and eliminate wasteful spending both domestically and in our trillion-dollar overseas budget.  Our debt has to come down, and it won’t until we start living within our means.

4.) Reform the Monetary System - If we are to have long-term economic progress, we must end the system of printing money out of thin air. The current laws limiting the circulation of gold and silver-backed currency must be overturned.  We can no longer base our money on the empty promises of bureaucrats that it is sound.

The market will have to adjust, and the nation will have to deal with the effects of what the government has brought upon us, but the answer is not to weaken the dollar, continue to sell our debt and national security to China and Saudi Arabia, and socialize what remains of the American free market.