How Capitalism Dies

"The Capitalists will sell us the rope with which we will hang them."
-- V.I. Lenin

Check here for an analysis of the federal government's plan to bail out greedy idiots good middle-class Americans who are losing their homes because they can no longer afford the payments on their adjustable rate mortgages (ARMs.)

There isn't much to say here. People took out loans on houses knowing the repayment rates could change. Every one of them probably could have bought a smaller house, on a fixed rate mortgage. Many of them lied about their incomes in order to get a higher level of financing. The economy slowed, and now they can no longer afford to make payments on their little castles.

And, of course, the government is going to bail them out. Paulson's plan will freeze the rates on ARMs (thereby shortchanging the investors who made the money available to be loaned in the first place.) It'll eat up taxes (yours and mine, fellow renter.) All to preserve the illusion of middle class virtue -- that it isn't their fault they can't afford to repay their loans, but the responsibility of the big bad banks. That it's your responsibility. Mine.

Lenin's dictum that capitalists will sell the rope that will be used to hang them is pretty much spot on, although maybe not in the sense Lenin thought it was. The people who took out ARMs to buy big houses they could not really afford were greedy. Maybe capitalism doesn't make people greedy, but it doesn't do anything to make them less greedy, either.

The same motivation that led "mom and pop" to buy a house they couldn't afford is going to lead them to demand government save them from their own incompetence. That same motivation is going to lead politicians to get involved, with predictably disastrous results, leading to additional political interventions. Hence, capitalism will wither and die, hoisted on its own petard.

The rope to hang themselves, indeed.


[Update: As should be expected, the Democrats' proposed solutions to the ARM problem run the gamut from inane to insane.]