The false lessons federal bailouts teach the homeless

By Jon Rector

The rise of the American bailout is damaging the nation and its prosperity. So big have the dollar amounts grown that we have become numb to them, as might civilians in wartime become indifferent to detonations after living too long in a bomb shelter. Corporate rescues are poisoning the hearts of a once-free people.

What are homeless men such as Fred Katschke, kneeling in our garden plot, likely to make of the day's federal bailout mentality?

The Federal Reserve System, whose “dollar” now buys what a nickel bought in the 1920s, has ballooned its credit across the economy. With the Fed’s help, the national government has turned its debt into money through the sale of trillions of dollars in IOUs. Dr. Walker Todd, a former Fed official, estimated recently in The Moneychanger newsletter that of the $9 trillion in new commitments by the Treasury and the Fed, only $900 billion is likely to be soaked back up; the rest is pure inflation.

An incredible self-confidence seems to govern our governmental and corporate bigwigs. They may be mighty men; are they aware of the questionable lessons they are teaching us common people?

As director of a homeless shelter, I see everyday what happens when the sort of thinking promoted by our Washington elites holds sway among the least wealthy. Sometimes job loss, alcoholism, mental illness and lack of opportunity are to blame for dissolution and insolvency of the men in my program. But often the traits to blame are plain sin: Pleasure seeking, vanity, irresponsibility, blame-shifting. These combine with other circumstances to put men on skid row, to forage in Dumpsters, smell like death and sleep under bridges.

What lessons are commercial government — Democrat and Republican — teaching the American people? Let me sketch the situation, and tell you the secret lessons we’re supposed to learn.

Banks create credit “dollars” out of thin air through the lending process. This fraud is politely described as “fractional reserve banking” where a tiny mustard seed of cash is the basis of a giant tree of loans. You and I are not so privileged. We have to work for our dollars, trading labor for wages. It was Ludwig von Mises who quipped: “Government is the only agency that can take a valuable commodity like paper, slap some ink on it and make it totally worthless.” Modern banking doesn’t even need paper anymore. Electrons will do. Lenders created “dollars” for useless shopping malls and $200,000 spec houses sold to day laborers and $19,000 a year office workers. Bailing them out shifts the liability and the risk of that industry upon common people. If they are taxpayers and people who use depreciating paper dollars, they are liable to pay.

♦ Lesson No. 1: Why bother to toil?Big business has license to steal. The system is stacked against working people; our leaders care for the rich, not the poor. It’s all work and no pay. Let’s soak ‘em all we can.

The FDIC, TARP, Fannie Mae, Freddie Mac, Ginnie Mae, the Federal Reserve System guarantee survival of the day’s reigning debt capitalism — an economic scheme in which actors great and small are perpetually insolvent but perpetually propped. Thanks to political and economic centralization, the scheme’s participants keep each other afloat. In a decentralized free market in which state power is minimal, each would rise or fall on its merits. Instead, government intervention creates the need for more intervention, making the prospect of free peoples and free markets — in credit, banking, commerce, whatever — even more remote. Will giving more power to the Fed or creating a consumer protection agency solve the problems created by a cartel of insolvent banks “guaranteed” by subprime regulators and the lender of last resort, the Fed — the lot of them leveraged to the gills?

♦ Lesson No 2: Government agencies are here to take care of you; you don’t have to be personally responsible for your condition. Are you poor? You don’t have to rely on their own sweat to put food on their table. The poor can simply fill out forms for food stamps, and obtain electrons on the stripe of their welfare card. It’s safe, impersonal; there’s no need even to say thank you. Food stamps for all!

Harold Galloway is a recent graduate of our program.

Papering over whole mountain ranges of soured loans with newsprint rolls of fresh credit and having bureaucrats take over failed companies skips a vital step. Rescues let players avoid important moral issues. When Ford, General Motors, AIG, Citigroup and others are not allowed to fail, the penalty for vice and rotten decisions is avoided. The disciplinary spanking is not administered.

♦ Lesson No. 3: Falling to the floor shakes up a soul, helps him get back on his feet and find independence. But since Uncle Sam is not letting offenders fall, there’s no point in your learning anything, repenting of anything or understanding anything. You don’t have to learn how you fell in the ditch. The why is not really important. The government and media are trying to whoop up a new round of borrowing and consumer buying. Why? They need a new credit bubble to stave off a violent collapse of the last bubble that made house flippers and everyone else so giddy. Our barons want consumers to borrow on cars and big-screened TVs to aid in the reinflation of the economy. If that were not enough, they want new debt-funded federal programs such as nationalized health care to expand the dollar supply based on new rounds of Treasury borrowings and a national debt approaching $11.7 trillion. In a credit-based economy that serves banks and their Gucci-shod suits, anything to expand the dollar base is good. Saving money is evil. Restraint on covetousness is for dimwits.

The main lesson of American bailouts is that if you make mistakes big enough to affect “the system,” you won’t have to pay for them by going into bankruptcy or trying a new career in, say, small farming. The abstract and the electron reign; the concrete (gold, silver, labor, personal responsibility) is scorned. Don’t worry. Let’s party — be happy. Somebody else will pay.

This essay originally appeared in 2009 in the Chattanooga Times Free Press. Jon Rector is director of Union Gospel Mission in Chattanooga. He can be reached at ugmdir@comcast.net.