Politicians, Bureaucrats Threaten Free Markets

IT'S SAID THE market hates uncertainty, which is unfortunate considering we're living in an age that's seemingly drowning in it, in terms of both politics and economics.

In the political realm, the presidential election has now come to focus on the likely VP candidates, with Sen. Barack Obama's choice expected any day and Sen. John McCain's not long after. Intrade.com, the real-time, real-money prediction market, is giving strong odds to Sen. Joe Biden (D-Del.) for Obama and Minnesota Gov. Tim Pawlenty for McCain.

Sen. Joe Biden (D-Del) VP Contract

Of course, it's not the vice president we elect, but the man at the top of the ticket. And although both senators would seem to occupy opposite sides of the political spectrum, a recent forum highlights their underlying philosophical bond: altruism and self-sacrifice.

At a conference hosted by the Saddleback Church of California, Pastor Rick Warren asked both men what they thought was America's greatest moral failure.

Obama's response was that "Americans' greatest moral failure in my lifetime has been that we still don't abide by that basic precept in Matthew that whatever you do for the least of my brothers, you do for me."

As for McCain: "America's greatest moral failure has been throughout our existence, perhaps we have not devoted ourselves to causes greater than our self-interest."

Both men essentially convey the same message: Self-interest is bad, while self-sacrifice, whether it's to your neighbor or your country, is good. It's as if America was founded by celibate nuns, not the rugged individualists who left an oppressive theocracy in order to pursue their own life, liberty and happiness.

America's true moral failure has come in instances -- think anti-trust laws, military conscription or bans on fast food -- when the individual's right to lead his own life has been trampled by publicity-seeking politicians intent on sacrificing the independent, sovereign entity to the majority mob. Unfortunately, both McCain and Obama fit that mold.

Economic uncertainty dominating the headlines this week is what, if anything, the Treasury Department plans to do about the rapidly deteriorating state of Fannie Mae (FNM) and Freddie Mac (FRE), the government-sponsored entities, or GSEs, that hold or guarantee as much as half of the nation's $12 trillion mortgage market.

I highlighted this very danger weeks back, citing the government's newfound interest as a negative influence on capital markets. Now the most egregious power, that to actually invest taxpayer dollars into the debt or equity of these rapidly disintegrating companies, is apparently likely to be used after all, despite numerous assurances from cocky lawmakers who fashion themselves economists. Ironically, it's the government backstop itself that's essentially prompting these companies into their death spirals: What private investor wants to buy equity that's likely to be wiped out when the government steps in anyway?

The tragic part is that even those individuals who were shrewd enough to pay their bills on time and not invest a dime into these government-operated Ponzi schemes will now be on the hook for bailing them out, all in the name of protecting the American housing market from correcting, which, in case you haven't noticed, it already has.