As Ron Paul spoke during the hearings on Wednesday (around 11:40am EST), the NYSE TICK plunged. Stocks hate Ron Paul. Stocks think he is a disaster for the economy.
As a life-long libertarian, I never “got” Ron Paul. I have never been a fan. He seemed to always just be frantically regurgitating libertarian philosophy. Nothing he has ever said has struck me as creative, innovative, or original. I understand that much of his stuff is written by Gary North, and I while I enjoy reading North, if one of his essays has Ron Paul’s name on it, I just won’t read it.
During the hearings I heard Paul say the dumbest thing that I have ever heard: that real estate is only worth what the market will pay for at any moment. While that is technically true, during a credit crisis it is totally false.
Suppose I have a house that has been worth $100,000 more-or-less for several years. Then, when I decide to sell it, I can only find one buyer who has $20,000 in cash – enough for a down payment. However, when he goes to the bank he cannot get a loan because there is a credit crisis going on.
So, according to Ron Paul, my house is now only worth $20,000 and I should quit my bellyaching and sell it for what the market will bear.
This is the point where I punch Ron Paul in the face.
Real estate values may be a function of available financing, but the idea that the credit crisis will never end is simply foolish.
Now imagine that Hank Paulson comes along and offers me $40,000. Well, maybe I would sell since it is double my best offer. Did Paulson waste the taxpayer’s money? Probably not. He probably made a deal that will turn out to be very profitable once the credit panic ends.
And if Paulson goes up-and-down my street buying up all the houses on the cheap, his actions would likely end the credit crisis. So, in other words, a buyer of sufficient size cannot only buy a lot of houses on the cheap, but he has the power to make himself right by ending the crisis.
Note: Yes, I know the situation is more complicated than this, but I had to dumb it down so that Ron Paul could understand it.