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Hornberger's Blog is a daily libertarian blog written by Jacob G. Hornberger, founder and president of FFF.
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Mussolini and the Mortgage Bailout


President Bush’s “agreement” with the mortgage industry to freeze interest rates is a reminder of the point that Ludwig von Mises made about interventionism. It is also a reminder of Benito Mussolini’s government-business partnerships that inspired much of the regulatory aspects of Franklin Roosevelt’s New Deal.

Notice, first of all, that President Bush and his federal cohorts are totally silent about the root cause of this crisis — the out-of-control federal spending that the feds have embarked upon since 9/11, especially to fund the U.S. Empire’s military adventures in Afghanistan and Iraq.

Do you remember when these people were suggesting that these adventures would essentially be “free” — that is, that the bills would be covered by nations joining the “coalition of the willing” and by oil taken from the Iraqis?

Those plans obviously didn’t work out. As most people are now realizing, the bills for these adventures continue to soar, with no end in sight.

How do such bills get paid? One option would have been for President Bush to simply raise income taxes on the American people to pay the bills. But Bush didn’t want to do that because he knows that most voters wouldn’t like paying higher taxes. So, he simply began borrowing the money.

Borrowing the money has involved sucking billions of dollars out of the capital markets, not only here in the United States but also internationally. That’s why the Chinese communist regime has now become one of the U.S. government’s big creditors.

As the government continued sucking all that capital out of the private sector to fund the military adventures, the inevitable result was a drying up of capital for things like refinancing home mortgages on favorable interest terms.

Thus, given that Bush’s adventures were not going to be free, it was just a question of who was going to have to pay for them. Since the taxpayers weren’t going to be charged, the bills had to fall on someone, and they did — on all those homeowners who signed those adjustable rate mortgages and who now can’t find mortgage companies to give them favorable deals on refinancing. It would be interesting to know how many of these homeowners supported Bush’s imperial adventures.

Ludwig von Mises pointed out that one government intervention inevitably leads to more interventions. Here we have a good example of that phenomenon. Bush’s interventionism in overseas affairs leads to a mortgage crisis at home, which then leads to Mussolini-type partnerships with the private sector designed to “encourage” the financial institutions to not enforce the terms of their contracts. And it’s all designed to look “voluntary.”

Of course, all that federal debt, including the monies owed to the Chinese communists, must be paid back. Ordinarily, that would mean higher taxes coming down the pike. Again, however, Bush has repeatedly told people that he’s a “no-new-taxes” type of guy.

That’s where the Federal Reserve has been so accommodating. It simply prints the money that is needed to accommodate the debt. That’s why the value of the dollar has plummeted some 50 percent in the last 4 or 5 years. That is what is called “devaluation,” at least when Third World regimes do it. It involves a debasing of the currency in order to pay the ever-rising bills of the government.

The average American has no idea what it being done to him because it’s a process that people are not taught in their economics and civics classes in high school and college. Students are taught that inflation is simply “rising prices” that mysteriously afflict societies from time to time, oftentimes as part of a nation’s “free-enterprise system.”

That’s in fact why many Americans believe that the Great Depression was a failure of America’s free-enterprise system. That’s what is taught in American’s public schools and colleges. Most Americans have no idea of the role that the Federal Reserve played in bringing about the Great Depression. At least Ben Bernanke, chairman of the Federal Reserve, acknowledged as much when he said back in 2002: “Let me end my talk by abusing slightly my status as an official representative of the Federal Reserve. I would like to say to Milton and Anna [Friedman]: Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again.” (See “Monetarist Explanations” and “Austrian School Explanations” at Wikipedia’s “Causes of the Great Depression.”)

Meanwhile, the presidential candidates, both Republican and Democratic, are stumbling over themselves to outdo Bush with grandiose plans to help out borrowers with their own financial bailout plans. Notice that not one of them has offered to help out any particular borrower by sending him a check out of his own personal funds. Instead, it’s all about using federal power to force lenders or taxpayers to take the hit.

Also, never mind that the Constitution does not provide the federal government with the power to impair contracts. Who’s paying attention to the Constitution? Hey, we’re at war! Just like Mussolini.

This post was written by:

Jacob G. Hornberger is founder and president of The Future of Freedom Foundation. He was born and raised in Laredo, Texas, and received his B.A. in economics from Virginia Military Institute and his law degree from the University of Texas. He was a trial attorney for twelve years in Texas. He also was an adjunct professor at the University of Dallas, where he taught law and economics. In 1987, Mr. Hornberger left the practice of law to become director of programs at the Foundation for Economic Education. He has advanced freedom and free markets on talk-radio stations all across the country as well as on Fox News’ Neil Cavuto and Greta van Susteren shows and he appeared as a regular commentator on Judge Andrew Napolitano’s show Freedom Watch. View these interviews at LewRockwell.com and from Full Context. Send him email.