Not linked on Ron Pauls Congressional Website.
Congressional Record [.PDF]
(Mr. PAUL asked and was given permission to revise and extend his remarks.)
2009 Ron Paul 8:1
Mr. PAUL. Although I recognize the chairman of the committees points that this literally is not the appropriation, I rise in opposition to the bill, but I do want to speak out against this whole process of what we are trying to do with the bailout, not only this time but the time before. It is a system that has brought this country to its knees, and I think we havent recognized what the cause has been, and therefore, were not looking at this problem in the proper manner in order to solve the problem.
2009 Ron Paul 8:2
There has been a lot of money involved and a lot of money spent. There have been appropriations that weve made here in the Congress as well as the trillions of dollars the Federal Reserve has used to try to bail out the financial industry, and nothing seems to be working.
2009 Ron Paul 8:3
I think its mainly because we havent recognized nor have we admitted that excessive spending can cause financial problems. Excessive debt can cause some problems. Inflation – that is, the creation of new money and credit out of thin air – can cause a lot of problems, and weve been doing it for decades. It was predictable. It was not a surprise that we got ourselves into a financial mess because of a system that is deeply flawed.
2009 Ron Paul 8:4
So what do we have? What have we been doing now for the last 6 months to a year? We have been spending more. We have been running up debt like weve never run up debt before, and were printing money like we never have before. We think that is going to solve the problem. That literally has been the cause: too much spending, too much borrowing and too much inflation.
2009 Ron Paul 8:5
I do want to address the subject more specifically about moral hazard and why the system was so deeply flawed. That is, when a Federal Reserve system and a central bank create easy money and easy credit and they have interest rates lower than they should be, businesspeople do the wrong things. They make mistakes. Its called malinvestments, and weve been doing it for a long time. It causes financial bubbles, and they have to be corrected.
2009 Ron Paul 8:6
Actually, the recession is therapy for all of the mistakes, but the mistakes come, basically, from a Federal Reserve system thats causing too many people to make mistakes. It causes savers to make mistakes. Interest rates are lower than they should be, so they dont save. In capitalism, capital comes from savings, but for decades now, capital has come from the printing press, and nobody has saved.
2009 Ron Paul 8:7
That contributes to what we call moral hazard as well as the system of the Fannie Mae and Freddie Mac system. It always had a line of credit. It never had to use it, but the assumption was, if we ever got into any trouble, the Treasury would be there, and the Federal Reserve would back them up. That existed for a long time, causing specifically the housing bubble to develop.
2009 Ron Paul 8:8
Then we subsidized the insurance. The government-subsidized insurance program further promoted the principle of moral hazard – people doing things, spending money and investing in the incorrect way.
2009 Ron Paul 8:9
Then with the assumption that were all going to be bailed out, which were endorsing by bailing everybody out, people say, Well, no sweat because, if there is a mistake, the government will come to our rescue. Thats part of the system of the FDIC. Now, nobody can conceive of the notion that we could live without an FDIC, but the truth is that a private FDIC would never permit this massive malinvestment. There would be regulations done in the marketplace, and there would not be this distortion that weve ended up with.
2009 Ron Paul 8:10
So this bill actually makes it permanent that the insurance will be $250,000 per depositor. Now you say, on the short run, thats pretty good because that conveys confidence to the system because at least we know that our deposits are secure. This is true. It helps in the short run, and generally, this is the way we work here. We always say, On the short run, this is going to be a benefit. On the short run, the bailout will help. On the short run, we will do this. Actually, on the short run, there is a great deal of harm thats done. As a matter of fact, today, the long run is here.