The LOUC of Treasury Action

The LOUC (law of unintended consequences) is really based in science. According to Sir Isaac Newton:

"Every action produces an equal, but opposite reaction."

This means that every time the US Government does something to the US financial markets, there is a equal, but opposite reaction set up like the shock waves of an explosion. While I am sure the politicians and financial types believe that they are doing what is right, no scratch that... they give a d*mn! Never mind.

Just understand that the LOUC in this case is going to be big, but largely hidden until its too late just as the imposition of the CRA in 1977 by then President Carter (a whole other kettle of fish) produced this financial crisis along with help from Bush 41, Clinton, Bush 43 and both Republican and Democrat Congresses.

What will the LOUC be by this large governmental intervention:

1. By buying equities of 9 of the largest banks, an unlevel playing field is created by giving these companies an unfair advantage over those institutions not allowed to participate. If you had a choice between a bank that was getting Federal support (implied backup and support) or a regional/small bank without it, most may choose the supported bank. This creates a diminutive effect on small, local banks to where you may have a rash of regional/small bank failures.

2. The taxpayer will never see a dime of their equity position may, I say may, bring since the monies will flow to the Treasury and used for more governmental spending done in your name, of course. The profits, it there are any, will be touted to support more and more governmental interventions which will move the country into the arms of socialism.

3. Other capital may not want to compete with the US Government since they will not be on a level-playing field like when competing with Warren Buffet since he is able to get much more preferential treatment thereby angering private capital. This could produce the opposite effect of the government intervention by driving out private capital forcing more and more government intervention to maintain their initial stake.

Keep an eye out, folks, there may be many more unintended consequences that we may not see for years, but that's the LOUC for you. It took over 30 years for the CRA to reach this level of impact.