“Let them eat cake!”

If you buy a car, the purchase has the encumbrances of sales taxes, license fees and insurance. The two former are required by the government, the latter one is required by both the government and your bank (if you have a loan).

If you buy a car, I assume you want to drive it on a roadway of some sort, and you have become accustomed to free roadways as a right. Without the sales tax, you would have to pay to use private roadways. Would those roadways always go where you need or want them to go? Would they always be accessible? I assume that you appreciate that others who drive their cars have some training prior to taking the wheel and some sort of penalty if they use their car improperly, like hitting you in the rear when you are stopped at a traffic light. You hope the driver gets a fine for improper driving and you hope the owner’s insurance will repair your car so that you don’t have to do it yourself. This is why there is no such thing as “free markets”. These encumbrances are designed to protect innocent bystanders from consequences of misuse of a vehicle, but also to allow the drivers more choices about when and where they can use their cars.

Recently, if you haven’t heard, Rick Santelli of CNBC had an on-air conniption fit over the mortgage relief plan issued by the Obama Administration: Rick Santelli video rant.


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The Obama Administration responded.

Rick has a point. In economic theory, it should be a “buyers beware” system. Each individual is supposed to understand the choices he makes and suffer the consequences of poor choices or poor planning. This assumes that every individual participating in the market has access to the same information and has the capacity to understand the choices presented. In an earlier time and in the face of minions, Marie Antoinette supposedly pronounced “Let them eat cake” as a solution to the starvation faced by her people. She obviously was not operating in a free market environment, but she certainly acted like she was. Basically, she didn’t give a damn because she had a “buyers beware” attitude. What Marie failed to realize, as did the monarchy of France when the revolution came, is that just because your position is golden you shouldn’t rest upon your riches.

Does anyone among us really enjoy the thought of somebody getting a forebearance on $100,000 of the $500,000 mortgage the owner took in order to acquire a house that is now worth only $385,000? I don’t think any of us like that idea. But, what is the alternative?

Rick would like to see these homeowners go into foreclosure. He would like to see these people kicked out of their homes, have houses sit in potential disrepair until a time when other buyers appear, have the banks’ assets decline rapidly (for that is what a failed mortgage represents to a bank), and have hyperinflation set in. As Rick said, he has an Ayn Rand view on this situation. Free markets are enjoyed by those for whom they work.

The fact of the matter is that many individuals and banks, along with the deafening silence of disinterest from the Bush Administration, set about to engage in a multi-year, multi-billion dollar game of Who Can Be The Bigger Capitalist. Are these the only ones who will suffer from this stupid, unencumbered game of mortgage roulette? No. There are plenty of other people suffering right now, some just a little, but for a few, much more.

The situation has caused demand for all goods and services to drop drastically. If this situation continues, many millions of people will be out of work. Let them eat cake. The interest rates have dropped to zero, essentially, which means that the meager interest from CDs that grandma and grandpa thought they were going to get has evaporated to nearly nothing. Let them eat cake. This means that those who are retired and anticipated having a few bucks in their retirement accounts have just witnessed their nest eggs vanish, almost. They are forced to go back to work at low wages because the pool of potential employees is high and the pool of available jobs is low. Let them eat cake.

If you were to examine the people who will suffer from this doomsday mystification of the “free markets”, you will find that the vast majority of them took no particular risks but will suffer the consequences in various ways, right along side of those who did take the risks. If this financial crisis had hit at the beginning of the second term of the Bush Administration, I would shudder to think of the reaction to King George’s pronouncement of “Let them eat cake”. The cake-eaters may have reminded George of how Marie ended her career as the Queen of France.

Could true free-market forces intercede and provide quick corrections to this crisis? Perhaps, but at what cost? Do we wish to have a precipitous drop in the financial foundations and the spirits of every American? Or, do we wish to engage in a slow decline that allows the most adjustments for everyone? I choose the latter because the former is what caused the Great Depression.

Dear Rick, if we all lived in a bubble where we could and should correct for every mistake we made, we all would be living rather hardscrabble lives. We have a government that was supposed to protect us from the threats we face, but that government was too busy occupying a country that never threatened us directly at all. Since we all realize that we really don’t live in a free-market environment and never have, why wasn’t our government acting to limit the markets from doing further damage to our country and the individuals that occupy it? Oh, I guess the Bush Administration was actively engaging in the laissez-faire free-market philosophy that got us into this mess in the first place, right?

Today, I am here to protest the rich and ignorant royalty of society who cannot see the damage done to others by their feudal free-market philosophies, and to the arrogance they display when pronouncing, “LET THEM EAT CAKE!