The definition of capitalism is the private ownership and control of the means of production and distribution. Libertarians extend that meaning to include all economic activity, from your daughter’s lemonade stand to a Fortune 500 corporation.
Last weekend the federal government repudiated capitalism when it virtually nationalized the mortgage industry by taking over Fannie Mae and Freddie Mac. Treasury Secretary Henry Paulson justified the action by saying it was necessary in order to keep mortgage rates low so as to boost housing prices.
This is exactly the same reasoning Speaker of the House Nancy Pelosi used in her trial balloon of nationalizing the oil companies in order to lower gas prices. Exactly. The. Same.
And the Libertarian Party of Georgia disagrees with that reasoning. We believe private property and the sanctity of contracts are more important than the government’s desire to manipulate rates and prices.
Our platform states “The Libertarian Party of Georgia wholeheartedly believes that free markets are the engine of individual liberty. Government intervention in the economy imperils both that freedom and the material prosperity of all.” More specifically, it goes on to say “…we oppose all government interference with private property, such as…nationalization…”
The Libertarian Party of Georgia believes the primary mistake was made years ago when the ownership structure of Fannie Mae and Freddie Mac was created. As ‘private’ corporations with an implicit federal guarantee of funds, they were encouraged to make risky loans precisely because they knew they would not bear the consequences of their business mistakes. The Libertarian Party believes mortgage loans need to be made by privately owned businesses that run the risk of bankruptcy if they make too many bad decisions. Nothing concentrates your thinking like risking large amounts of your own money!
The current real estate crunch of falling property values and defaulted loans is painful for sellers, for overextended borrowers, and for stockholders of lending institutions that have made poor loans. But the Treasury Department’s expropriation of Fannie Mae and Freddie Mac compounds the problem by removing the mortgage industry even further from market realities. Instead we have a typical statist bailout that takes money from the people who have behaved responsibly (i.e., by paying their loans), and gives it to the fools who have made mistakes. It also ignores the risk taken on voluntarily by the stockholders in Fannie Mae and Freddie Mac — which, don’t forget, are nominally ‘private’ corporations.
The fact that Treasury Secretary Paulson’s action has put the American taxpayer on the hook for as much as $300 Billion-with-a-B for the bailout is a farce, defined as the logical conclusion of an illogical situation. Libertarians believe a cost of even 1¢ is too much: there is no Constitutional authorization for the government to guarantee loans to private companies — nor to confiscate them and engage in the business of making home loans. Fannie and Freddie should have been allowed to go bankrupt.
Compounding the farce is the issue of the slippery slope. Now that the government is rescuing Fannie and Freddie, the Big Three automakers are lobbying Congress for a series of $25 Billion-with-a-B low-cost loans.
The Libertarian Party of Georgia believes free markets work. We believe that personal and economic liberty must include the freedom to fail (along with the responsibility of bearing the consequences of failure). In the long term the American economy and housing industry will be much better off if Freddie Mac and Fannie Mae are allowed to go bankrupt. Other lenders — those without a hotline to the US Treasury — will buy up their obligations at clearance prices, and a new business cycle will begin. This is how market adjustments occur.
Would some people feel pain if Freddie Mac and Fannie Mae were allowed to fail? Yes. But we believe it is better for those who made the mistakes and misjudged risks to feel the pain rather than for prudent borrowers and lenders to be held financially responsible through a government bailout guaranteed by our tax money.
