More government policy that is leading to the takeover of the private sector and possibly an economic collapse.

(Things are a little slow so I will touch up this post on the economy. It should be enough to last for a while.) I read this bit of news last week and I thought that it was interesting because the Obama administration is expanding a policy that is similar to the one that caused the recession, " The Obama administration’s decision to cover an unlimited amount of losses at the mortgage-finance giants Fannie Mae and Freddie Mac over the next three years stirred controversy over the holiday." I also read this article today,

Mortgage giants Fannie Mae and Freddie Mac are now basically a 'public policy instrument' of the government, Rep. Barney Frank (D-Mass.) suggested Tuesday.
Frank, the chairman of the House Financial Services Committee, asserted that the companies, which were taken over by the U.S. in September 2008, have become an extension of the government's policy-making tools.
'Remember now that Fannie and Freddie have been converted," Frank said during an appearance on CNBC. "Part of the losses of Fannie and Freddie are that since the housing collapse, Fannie Mae and Freddie Mac have become a kind of public utility.'[...]'They're not what they used to be — that inappropriately hybrid, private stock company, public policy instrument," Frank said. "They have become the public utility that finances housing in America to a great extent. Part of the loss is a public policy decision that it would be worse to not have some support for the housing market.'

The housing mortgage industry has basically been taken over by the government and is being used as a way to carry out the public policy of reshaping our economic system. They are using the cover of social engineering that claims to be helping out the poor and minorities. All of this is happening before our eyes and is receiving little publicity or attention.

To see how the government is able to exert so much influence in the private sector, we need to look at how the government has been able to take over such a large part of our economy.The government created easy money which created an artificially high amount of credit by keeping interest rates artificially low.(Read the "House that Uncle Sam Built under the required reading.) This created a bubble by creating an artificially high demand for home construction, and this artificially inflated home prices. Too much capital was borrowed and too little of it was backing up hard assets. The government also forced the banks to loan out money to people that were obviously unable to repay these loans back; and as a result, banks then had a bunch of worthless loans or assets. The banks then took these worthless loans and packaged them into investment items, in an attempt to make an evil profit, which spread bad assets throughout the country and the world--everybody invested in worthless investments. The economy was build on a foundation made of sand. When delinquencies on these loans rose due to a slow down in the economy and the bank's capital assets dried up, the credit markets and banking system seized up. (Most businesses rely on credit to continue to operate.) The government caused this near economic collapse to happen. After this happened, the government came along and forced banks to take government money. This gave the government a foot in the door of the private sector. Now they are telling bank how much they can pay their CEO's. The government created a bubble and an economic recession. From the first article above, we can see that the government is going to pump an unlimited amount of money into the mortgage industry. So the government is forcing the Nation to put bad money into the economic system and build the foundation of our economy on a weak foundation. The government is backing up failure. Put the taxpayer in the place of the banks from the previous illustration. This policy is forcing the taxpayer to back up worthless loans. When these loans can not be paid back because homeowners become increasingly delinquent, which they are already, due to high unemployment or an overall bad economy; it will be the the taxpayer and the country at large that will fail. Who will be there to bail these last two out? Overall, capital--which America is running out of--is being taken by the government and being wasted on non productive purposes.

Also put nations in the place of the banks, and one can see a global economic problem.

Is Sovereign Debt the New Subprime?

That’s a question many on Wall Street are asking as 2009 comes to a close. Just as many subprime borrowers were unable to make their mortgage payments in 2007 and 2008, investors now fear certain nations will be unable to pay their debts in the year ahead. Rising mortgage defaults and credit card delinquencies put many banks on the brink of bankruptcy in 2008, sending the global economy into a tailspin. But sovereign debt defaults are potentially even more catastrophic as they can lead to geopolitical instability, societal unrest and even war. And there will also be economic ramifications for investors worldwide, putting America’s (and the globe’s) fragile recovery at great risk. To varying degrees, Greece, Spain, Ukraine, Austria, Latvia, Mexico are just a handful of the nations viewed at risk of defaulting. Meanwhile, Dubai only just avoided a similar fate thanks to a $10 billion bailout from their oil-rich neighbor Abu Dhabi.

The economies of the world are being built on a foundation of debt. Is this leading to a world-wide economic problem that would force a realignment of the world economy?

This move of backing up unlimited losses of Freddie Mac and Fannie Mae by the government will have this effect according to Joe Weisenthal,

The above actions would preserve and strengthen the government’s involvement and control over the country’s housing finance system and make it harder to reintroduce substantial private sector involvement later on. They would also continue distortions in the marketplace leading to who knows what unintended consequences. Finally these steps would do nothing to deleverage the housing finance system, a key step in returning it to any degree of normality.

I read this from the Hot Air blog titled "The New Housing Bubble?". The two links at the top of the page on the link above explains all of this fairly well, so I am not going to simply copy and paste it. The bottom line is that the same bad policies that led to the recession are being carried out on a much larger scale and the government has increased its manipulation and scope of influence in the private sector. It is amazing that policies that led to the greatest economic disturbance since the Great Depression--some say the seventies, I don't know the statistics--are not only being continued but are being implemented on a much larger scale. Of course this is all for the purpose of collapsing the system so that a new one can be created. One can easily see how the misguided government is creating the conditions for an economic collapse. This is a short piece. Another interesting article would be on how the economies of the world are in danger of being collapsed as indicated in the yahoo news article. If this happened, what kind of system would emerge?