Every Government Solution Is Worse Than the Previous One

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A fix for Fannie Mae and Freddie Mac is working its way through Congress. It is far worse than Fannie and Freddie were. It writes guarantees and bailouts, paid for by taxpayers, into law even before a mortgage market crash occurs.

This is the catalyst for my new law of politics:

Every government solution is worse than the previous one.

(You may substitute the work “prior” or the word “last” for “previous” if you want to.)

There is no clearer case of state-run robbery than a guarantee paid for by taxpayers of a financial security, be it a stock, a bond, a bank loan, a bank deposit, a derivative, a sovereign bond, a corporate bond, a municipal bond, or whatever.

The holder of a security, otherwise known as the investor or lender, is the proper (meaning the just and lawful) risk-bearer. If the return is not what is expected or contacted for or if there is a default, the holder should absorb the loss or take what’s coming according to the contractual terms. Anything else is unjust, such as ex post shifting the loss to someone else, like taxpayers or some other security-holder.

There is absolutely no way to prevent losses. Guarantees do not prevent losses. They merely shift their incidence to the guarantor. The U.S. government guarantees many things, thereby shifting losses to taxpayers.

11:20 am on March 27, 2014
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