Idiocy and ignorance

Here's some things I've seen idiots saying:

1. This crisis is created by the Federal Reserve, a PRIVATE bank
2. We should let the banks fail.
3. We don't need a banking system
4. Treasuries aren't backed by anything and are worthless
5. We should bail out ordinary people, not banks
6. The Federal Reserve is just *printing* money, and it's going to cause runaway inflation

Okay, so here's my responses:

1. The Federal Reserve does not have supervisory capacity over banks to keep them from making risky loans and bad investments and such, which is the root cause of this problem. That's the Comptroller of the Currency. The Federal Reserve is "private" in much the same way that the U.S. Postal Service is "private". I.e., only vaguely and on paper. The Federal Reserve can only buy and sell assets and lend money to banks, that's the extent of their power over the economy. Blaming such a limited institution for the current problems are ridiculous.
2. We can't let the banks fail because that would evaporate 90% of the money in the U.S. economy. Read my article on deflationary spirals (see the "Important Posts" section in the right margin).
3. A banking system allows borrowing money to create an addition to the economy, and then use the output of that addition to the economy to pay back the borrowed money. We now have 300 years of experience to show that a banking system is necessary for a modern economy. London's banks are why the United Kingdom became the British Empire upon which the sun never set -- they were the first to create a modern banking system. The Muslim world did not have a banking system because Islamic law prohibits lending money at interest, and you know how well that worked. Without a banking system, economic activity slows down drastically, both because of the borrowing/lending aspect and because all commercial transactions must take place by moving heavy bails of physical cash around rather than via electronic funds transfers in bank ledgers. To recap, we simply do not have a modern economy if we don't have a banking system -- what we have is a Dark Ages economy where we end up reduced to poking each other with sharp sticks to steal each other's meagre rations of turnips and gruel.
4. Treasuries are backed by the economy of the United States of America. As long as that economy is strong and can be taxed to pay off Treasuries, Treasuries have value. There has never, in the history of the United States of America, been a default on Treasuries -- even the Revolutionary War debt, which was ten times larger than the GDP of the United States of America at the time, eventually got paid off. The oanswer to the worth of Treasuries is that they are worth exactly what people will pay for them. Right now so many people want them that they're returning effectively 0% interest. This is not a sign of a worthless asset. As long as people want to pay for them, they have value.
5. The problem is that if the banks fail, their assets get sold at auction for pennies on the dollar. Their assets including all those mortgages. Thing is, 90% of the money just evaporated out of the economy, 90% of the money that could be used to pay off those mortgages. Which means that that pretty much every house with a mortgage on it becomes foreclosed and thus the property of a small set of very wealthy and ruthless men. Now, I do agree that ordinary people need some help, but transferring their houses to a small set of very wealthy and ruthless men does not sound like the sort of help they need.
6. The Federal Reserve is not "just printing" money. The Federal Reserve is handing out money in exchange for assets -- bonds, Treasuries, mortgages, etc. -- in an effort to prevent deflation. They have very sensitive measures of the money supply, and if their measures show inflation starting up, they can then start *selling* those assets, thereby un-printing the money. But given that tens of trillions of dollars have evaporated from the economy over the past six months due to the collapse of the mortgage industry, lockup of credit markets, collapse of housing prices, etc., the Federal Reserve's efforts are quite appropriate.

The problem is that there's all these idiotic notions out there which have some surface plausibility, but are simply ignorant. All I can figure is that these are the same sorts of people who would try to tell a heart surgeon how to do heart surgery or a rocket scientist how to design rockets. They are ignorant, they like being ignorant, and they believe that their ignorance is a strength, not a weakness, and can be used to solve all of the world's problems. And sad to say, these idiots are the ones who get elected to Congress and/or direct those who are in Congress, too... sigh.

Badtux the "We are fucking fucked big fucking time" Penguin