DownsizeDC.org
July 16, 2008
How Things Get Too Big to Fail
By Jim Babka
Change the political environment. Recruit more DC Downsizers. Share this message with others.

Quote of the Day: "The bigger they are the harder they fall."
-- conventional wisdom

Subject: How things get too big to fail, and what to do about it

When the politicians created Fannie Mae and Freddie Mac they claimed that these institutions would provide stability to the housing market. But neither the housing market nor Fannie and Freddie are stable. Instead, Fannie and Freddie have brought us fear, risk, and uncertainty to the tune of $5.3 trillion.

Only the monopoly we call the federal government has the power to create a $5.3 TRILLION risk.

In a true free market the business of secondary mortgages would've been handled by hundreds or thousands of competing entities. It would've been very unlikely that all these firms would have made the same mistakes at the same time. But our government created a situation where the secondary mortgage business is dominated by just two institutions, Fannie and Freddie, so that any mistakes these two firms make have the potential to harm everyone.

Combine this with a centralized money supply and centralized interest rates set by the Fed, as well as centralized rule making concentrated in Congress and the bureaucracy, and conditions are ripe for disaster. 

Even in what's left of the free market economy government contracts and preferential policies help create businesses that are too big to fail. And so we constantly find ourselves at the mercy of the decisions of a small group of people running huge institutions that concentrate, rather than diversify, risk. Just a few mistakes by a few of these individuals can cause a cascade of disasters. 

Things become too big to fail because the federal government makes them that way. Failures follow naturally from the concentration of decision making. Government bailouts immunize these "too big" institutions from the consequences of their decisions, thereby encouraging risky behavior. There's even a name for this phenomenon -- "moral hazard." Big mistakes with big consequences become very likely.

Who pays for all these mistakes? You do. Your savings will be damaged or destroyed, through losses and inflation. As a taxpayer, you'll foot the bill for bailouts that primarily benefit the people who made the mistakes.

What can we do about this? We must decentralize our economy by Downsizing DC. This will take time, but it must be done. What do we do in the short term? We must start by telling Congress what we want.

We may, at some point, have a campaign directed at Fannie Mae and Freddie Mac. In the meantime, the proposed bailout of these monstrosities is going to increase the national debt and make it harder to deal with the future unfunded liabilities for Social Security and Medicare. For now, we can use our campaign on that subject to tell Congress what we think.

Use your personal comments to object to the bailout of Fannie Mae and Freddie Mac. Remind Congress that it will increase the national debt. Tell Congress to downsize government involvement in banking, thereby reducing future risk from ventures that are "too big to fail." You can send your message here.

Please also make a contribution to help us grow. We are intentionally designed to thrive during hard times by keeping our operating expenses low. Small contributions and monthly pledges go a long way with us. Choose a contribution amount that fits your budget, so we can keep growing larger and stronger. You can contribute here.

NOTE: If you want to forward this message to others (we hope you do!), or post it on your blog, it's okay to cut out the appeal for funds and the subscription information below the signature. In addition, this message is also posted on our new blog, and you can leave comments there if you so desire. 

Thank you for being a part of the growing Downsize DC Army.

Perry Willis
Communications Director
DownsizeDC.org, Inc.
Filed under
Blog commenting is currently under construction. In the meantime, you can send an email if there's something you'd like to tell us.

What Can We Do For You?

We can help you downsize the federal government, if you want that. All you have to do is join. It's free! In return...

We'll give you an army.

We're recruiting a huge army of supporters to work for what you want.

We'll give you influence.

The Downsize DC Army will exert relentless, resistance-numbing pressure on Congress.

We'll make your voice heard.

We'll use our growing army to make your beliefs heard by everyone, everywhere, every day.

We'll give you winning strategies.

Ideas like our "Read the Bills Act" and the "One Subject at a Time Act" will give you the leverage to win the public debate, control Congress, and Downsize DC!

We'll give you powerful tools.

  • Your free membership includes a subscription to our free email newsletter, the Consent Chronicle, which national talk show host Jerry Hughes calls by far the best newsletter he receives.
  • You'll be able to use our Educate the Powerful SystemSM to pressure Congress. It's easy. All it takes is a few mouse clicks and keyboard strokes. You can do it in your bathrobe while you're drinking your morning coffee, or during a break at work.
  • You'll also gain access to our 16-page strategy document, "The Downsize DC Vision." You'll learn about important insights like "ignoring an axiom," and powerful strategies like "picking off the herd." One reader called this document "the unified field theory" of political change.

To gain these benefits, just enter your email address in the box below and hit Subscribe!

Subscribe to the Consent Chronicle
Enter your email address twice: