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Another Stimulus


Every stimulus essentially takes away from long-term wealth creation.

A congressional report out today lays almost all of the blame on the financial crisis at the feet of Fannie Mae (FNM), Freddie Mac (FRE), and those that fostered their growth and "mission."


"Fannie Mae and Freddie Mac were the chief culprits in the housing crisis because they encouraged people who could not afford payments to borrow money, according to a congressional report released Tuesday.

"The claims in the report have long been advanced by conservatives, who argue that the Community Reinvestment Act and other federal programs fed the housing bubble that burst in 2007 and led to the economic downfall in 2008.

"But the report explains in detail how Fannie and Freddie -- government sponsored enterprises (GSE) that were not subject to the same oversight as other publicly traded firms -- "privatized their profits but socialized their risks."

"The report cites Barney Frank's accusations that to blame Fannie and Freddie is to blame only the lender and not the borrower: 'This misses the mark entirely. In fact, responsibility for the erosion of mortgage lending standards, which began with government affordable housing policy, rests squarely on the policy makers who advocated these ill-conceived policies in the first place,' the report says. '

" 'Borrowers quite naturally responded to the incentives they were given, irrespective of their socioeconomic status, and risky lending spread to the wider mortgage market.' "

This is nothing new to readers: We've talked at length about the government's complicity in this Ponzi scheme (driving prices up devoid of value). Bernie Madoff was put in jail for running a Ponzi scheme, so what is the difference from what the government did? First, what the government did was legal. Congress approved and put in place the measures necessary for the GSEs to accomplish their "mission."

Second, Mr. Madoff knew what he was doing, and he knew that it was wrong. Unfortunately, I cannot say this about the government.

So now the government which got us into this mess -- and let's not forget the Fed, which isn't a government agency, but is closely tied to the government, and kept interest rates negative for years -- is going to get us out of it through a second stimulus and more?

If we haven't learned by now that governments cannot create wealth, we may never learn. They aren't creating wealth out of nothing and giving it away; they're creating money out of nothing and giving it away (see my recent article, Money vs. Wealth, for more). But when they create money out of nothing, it has a cost. But that cost isn't evident right away.
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