Why the Bailout is a Disaster - Part 1

There is more material here than you could possibly read in one afternoon, or even a month of afternoons, but it's all there.

I'm going to try to be clear and concise, but I may be very sarcastic, cynical, and at times: incensed. The $700B bailout is a mistake of massive proportions.

The bailout will devestate the dollar. In the short-term, the stock market will rally because speculation always brings rallies and speculative rallies are always short-term. By definition, it won't last.

Why the bailout won't work - Reason 1 of, like, 1,476.

"We have a 'credit crisis' because all our capital is wrapped up in houses that are too damn expensive"

The problem with our economy is that housing prices are still too high. So is health care and education, but that's a rant for another day. Whenever these politicians bloviate about kick-starting the housing market, or start moaning about how the housing market has "slowed", or how it's "sluggish", or how prices are "depressed", I want to send a swift quick in the nuts to my nearest Senator.

Are we nearing the end of this economic downturn? Well I live in DuPage County (just outside of Chicago), and I have a great little economic indicator that I've been using, and I encourage you all to use it, too. When I can buy a 1400 square foot house for $150K, then I will know that we are nearing the end. If I can't buy a 1400 square food house for $150K, then I know that homes are still overpriced, and I know that we still have a long way to go.

What is so great about unaffordable homes? Where did this insane misconception come from that we can double the price of homes every 5 years and somehow our economy will not go into a full-fledged economic nuclear meltdown?

These over-priced unsaleable homes are KILLING our economy. I have no interest in seeing a return to rising home prices. At least not until I can buy a 1400 square foot house for $150K. Then they can start to go up again. But it shouldn't go up to $300K in 5 years! It should go up to, like, $175K, at MOST.

This notion that we can enter a period of indefinite prosperity by building homes nobody wants and charging prices no one can afford in order to give construction workers jobs so that they run up credit card debt on big screen TV's and the $150/month cable bill that comes with it is non-sensical Keynesian BULLSHIT and it makes me angry just thinking about it.

We have tied up massive sums of money into the housing market that doesn't belong there. Nobody wants a 3 bedroom house so badly that they are willing to pay $500K for it. This is called "malinvestment", and it is the result of inflationary credit, generated by the Fed, loaned out by Fannie Mae and Freddie Mac. We are experiencing a "panic" due to speculation caused by the aforementioned credit inflation. The only way to end the panic, and return to prosperity, is for the market to reallocate assets to what the market wants.

This bailout does not alleviate the core dillema: getting money out of homes to where it belongs. The bailout will enable banks to keep their assets tied up in houses for another couple of months.

Stay tuned for:

Part II - "We never should have bailed out Fannie Mae and Freddie Mac"

Part III - "Bankruptcies are the SOLUTION, not the problem"

Part IV - "Banks won't write-down their homes if they think $700B is coming their way"

Part V - "The world WON'T come to an end, and other delusions of Paulson and his bailout cronies"

Part VI - "The Bailout will maintain the current corporate-government power structure, but it will not help the economy"

Part VII - "I'm becoming a full-fledged no-holds-barred no-apologies small-L libertarian because I love freedom, I don't trust the government, and I don't care what anybody thinks about it."

Part VIII - "I'm voting for Chuck Baldwin for President because I live in Illinois and Obama's victory here is a foregone conclusion."