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Gvmtprop I can never figure out why people are genuinely surprised when government schemes explode in taxpayers’ faces. Just about every government program is some flavor of Ponzi scheme, confidence swindle, or extortion racket. Every one is a time bomb whose clock is ticking from the start. In designing these bombs, the long delay between the set-up and the blow-up isn’t a bug, as they say in the software business, it’s a feature. When they finally blow, the solution is always the same: more government oversight, regulation, and taxpayer sacrifice. That’s a design feature too. 

Government programs are mechanisms for transferring wealth between groups. These transfers work in different but similar ways. Most commonly, political schemes reward small, politically well organized groups at the expense of a larger, less organized groups. Concentrating the benefits assures an enthusiastic constituency for continuing the swindle.  While spreading the costs thinly across the losing group makes any individual benefit to be had from fighting it hardly worth the effort.

Democracy in action. In every democracy political Ponzi schemes like Social Security, Medi Care, subsidized lending, FDIC insurance, and a host of others infest the body politic like ticks on a hog. Every tick imagines he’s living high on the critter, right up to the moment when the hog drops dead.

A second popular program model privatizes economic benefits in the marketplace and socializes risks. Through such programs government poisons the productive well of the private market with what economists call “moral hazard.” FDIC insurance, Federal Flood Insurance, and the implied guarantees behind Government Sponsored Enterprises (GSEs) like Fanny and Freddie are perfect examples. It’s starting to look like they’ve poisoned every well on earth. The proposed solution is to toss in the rotting carcasses.

The chance of becoming filthy rich is the driving force of capitalism. Undisciplined force, however, is a dangerous thing. Free market capitalism disciplines its participants with the very real possibility of going broke. Risk doesn’t keep capitalists from making stupid decisions, but bankruptcy limits the number of stupid decisions that can be made.

Risk balances reward ruthlessly and efficiently. Everyone benefits. Good ideas, happy customers, better products and services are rewarded while the bad ideas suffer failure. It’s how America became rich and its why People’s Republics the world over, to the extent they suppress free markets, are economic and political hellholes.

Government backing and ultimately government ownership removes risk without removing the chances for profit. And in so doing distorts the risk reward ratio in favor of greed, recklessness and finally, stupidity. One need only compare the relative successes of FEMA and FEDEX to see the advantages of private enterprise.

If a person could buy insurance against speeding tickets, no one would be surprised eventually to find that person wrapped around a bridge abutment. When Uncle Sam uses taxpayers’ money to insure financiers against the risks involved in lending money, no one should be surprised when we find out the bankers lent huge sums to anyone who could fog a mirror. Banks make their money, after all, by lending money. Offering mortgage insurance finally becomes like insuring the players in a crap game. If they can’t lose, they are going to keep playing until they can’t win.

The nationalization of the mortgage, insurance and finance industries dramatically shows the invariable fate of booby-trapped government schemes. To keep key beneficiaries from getting hurt when the bombs go off, our leaders throw the bodies of helpless taxpayers onto the grenades. But the bombs are going off because generations ago they were designed to. Greedy businessmen will be blamed. They will need to be more closely watched by a growing army of selfless public servants, who fortunately, are immune to the effects of greed and power.

The conversion of the United States to a socialist hellhole is well underway. The takeover of Fanny Mae and Freddy Mac alone has put about half of Americans in public housing.

The Fed will continue to finance the Che Guevara solution, nationalization of the entire economy. They will try to keep the punch bowl full of easy money on the theory that best way to avoid a hangover is to stay drunk. Legions of new overseers will set new and larger time bombs. Eventually the explosions will be too large to contain. When those bombs go off Americans will have been so thoroughly poisoned by the moral hazards of government guarantees that we’ll be content to know it will be our children and not us who will pay for the cleanup.