We have been told that if we don’t acquiesce to the single biggest government expenditure (or assumed risk) of a generation then the (financial) world as we know it will end. We have been told that the markets are as bad off as they have been since the Great Depression. We are further informed that only a massive expansion of the federal government’s power over the economy, control over executive compensation, banning short selling, derivatives and anything else these numbskulls don’t understand is the answer.

Bull.

It is important to remember these are the same clowns who have led us to this point. They have no special wisdom to be applied to the situation. I’ll give you an example if you will permit me. The SEC has temporarily banned short selling in financial stocks (an action quickly replicated around the world by other bourses). The initial list of the 799 “financial” stocks included a Nigerian aviation company(!), several firms which are no longer traded and left off some major financial companies such as Fifththird Bank Corp of Cincinnati and hundreds of smaller ones. They later added GM and Ford to the list, those titans of finance along with a conglomerate, GE that only receives half of its profits from financial operations.

The result of all of this brilliant maneuvering by our government has been three straight down days in the DOW and S&P 500 (financials included) despite the short sell ban. Maybe it wasn’t those evil speculators that were the problem . . .

This is but one example of how extremely stupid these people are and it needs to be repeated: these are not intelligent men who really understand what the problem is. They are covering their backsides and are attempting, according to Walter Williams to drive fear into the hearts of investors and citizens alike.

This was not a market failure. It has nothing to do with “toxic assets” or “bizarre derivatives”, and the people who use these words are showing the world they don’t have a clue what they are talking about. They don’t understand basic futures and options let alone CDOs and credit default swaps which in and of themselves aren’t that complicated. They can’t understand the simple things about economics and markets, what makes you think they get how you can strip the cashflow out of bonds? The efforts of government intervention in free markets led to this failure, not lack of regulation or byzantine investment vehicles.

The consensus is that Something Must Be Done to rein in financial markets. This consensus is part of a general theme among some pundits and economists that it’s time to give up the naïve faith that markets can solve every problem. We are told that markets have failed.

Yet much of the current chaos is the result of attempts to steer or control markets rather than let them be. Much of the chaos is the result of political failure.

This confusion and fear in the market place is driven not by a fear of what has happened already, but where we might be going from here. Look into the eyes of the congressmen, bureaucrats, TV pundits and even the two men running for president as they discuss this bailout, credit squeeze and what to do about it: they are lost. They genuinely don’t understand what is happening, why it is happening and what consequences will result from their actions. The markets know this and are reacting accordingly. Smart conservatives from all walks of life don’t know what the next best step is. Donald Luskin, a free marketeer if you ever saw one, doesn’t know what the right move is. I don’t blame him, the future has never been cloudier. His skepticism is welcome however:

According to the Federal Deposit Insurance Corporation there have been 15 bank failures in the U.S. between 2007 and today. We had thousands over a few years in the late 1980s and early 1990s. Since the stock market hit an all-time high last October, the S&P 500 has fallen 23 percent. It fell more than twice that — 49 percent — during the last bear market, between March 2000 to October 2002.

Even if you grant that this really is a “crisis,” and that it justifies an extraordinary intervention, there can be no doubt that the $700 billion authority being sought for the purchase of distressed mortgage-related securities is far too great an amount. Of the $1.26 trillion in non-prime mortgages — that is, “sub-prime” and “Alt-A” mortgages — $743 billion is already either owned or guaranteed by Fannie Mae and Freddie Mac, companies that were shored up by a government rescue earlier this month. That leaves $521 billion, which means the Treasury’s $700 billion would be more than enough to buy them all. And that’s even if the Treasury paid full value. In fact, the Treasury will get a steep discount, considering that many of the mortgages in question are in delinquency or default. Does the Treasury really have to buy every single non-prime mortgage — even the healthy ones — twice over?

Jeb Hensarling has provided some leadership, along with Jim DeMint, but even these stalwarts of economic liberty are struggling to deal with the enormity of opposing socialism on this scale in the face of the consequences of failure.

I wish I had all the answers to this crisis, I really do. The truth is I know just two things right now, I don’t trust what Hank Paulson, Ben Bernake, Chris Cox and the boys on the Hill are saying is accurate (while at the same time not doubting their honesty in saying it) and this is exactly the sort issue that Calvin Coolidge would suggest we take a wait and see approach to. The path will become far more clear if we are willing to spend the time and effort to gather more information.

Whatever else happens from this point forward I hope the ills of socialism are blindingly obvious to all observers of this disaster. Support it at your own peril. Also remember, as my Dad would say, to keep smiling.