Too Big to Fail?

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In
the midst of highly unpopular bailouts of Wall Street, many justifications
have been given about why Washington feels the need to act. Some
claim that capitalism and the free market are to blame, but we have
not had capitalism. If you compare our financial capital to our
aggregate debt, this would be obvious. In the same way, we have
not had a truly free market. The monetary manipulations of the Federal
Reserve, a complex tax code, the many “oversight” agencies
and their mountains of regulations show that we are far removed
from a free market economy.

Another unsatisfying
argument is that certain entities have to be bailed out because
of their economic importance. Supposedly, some entities can be so
big, so important, that no matter what they do, citizens must perpetually
sustain them.

Even limited
government has a basic duty to defend against force and fraud. Some
argue that force is somehow permissible just because the entity
engaging in it is "economically significant." But one
could use this reasoning to prop up slavery. It could be deemed
unfortunate but economically beneficial, and indeed these arguments
have been used historically to deprive people of their liberty.
But slavery should never be tolerated regardless of any economic
benefit, just as systemic fraud should not be tolerated. Some banks
on Wall Street should fail. Fannie and Freddie should fail. They
are perpetrating fraud against the people. Yet, government insists
on rewarding behavior which should instead be investigated, prosecuted,
and punished.

There has been
much evidence of fraud at Fannie and Freddie, but when one man,
Franklin Raines, defrauded the organization out of millions of dollars
through illegal accounting tricks, and ends up agreeing to pay back
just a fraction, one could argue that it was well worth it to him.
Fannie went on to only get more deeply involved in subprime mortgages
after this investigation. Several organizations are suffering right
now precisely because the free market is trying to work and punish
mismanagement, if only the government would get out of the way and
let it. Perhaps banks are not lending to each other because they
know that complicated accounting standards, created in part to defend
against confiscatory tax policy, enables false fiscal pictures to
be presented, which erodes trust. But this is not a time for the
government to step in with more burdensome and complicated regulations,
or more foolish liquidity injections. This is a time for some banks
to fail, and remaining banks to deal honestly and transparently
once again. More regulations will only result in more lies.

Just as economies
that turned away from slave labor had a transition period, our economy
would transition as well, but in the end, if we turned to honest,
sound money and a truly free market, we would end up with a more
just society, founded on truthfulness and decency, not subject to
the violence of force or the whims of fraudulent institutions. Unfortunately,
it seems we are headed into a new era of slavery, however, where
all taxpayers will be forced to render to the Fed and big banking
interests the bulk of the fruits of their labor, possibly through
higher taxes but definitely through the eroding force of inflation.

See
the Ron Paul File

October
22, 2008

Dr. Ron
Paul is a Republican member of Congress from Texas.

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Paul Archives

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