The recent talk of government bailouts on both lending institutions and personal mortgage loans has me deeply troubled about the future of our market system. Over the past several decades, the ‘self-anointed’ (as I like to refer to our pro-government bailout friends) have felt it proper to step in and prop up struggling markets. Their results have not been impressive. Our social security’s return on investment is less than inflation and the money is spent by the government, converted into bonds, and placed back into Social Security as a one trillion dollar debt (but sometimes referred to as trust).
Then, there is health care. Government spending in health care has led to $100,000 per day bills for patients in ICU and multi-million dollar bills for long-term care. Patients are charged this because private businesses know exactly how much the government is going to cover and how much the patient can afford. Government involvement in health care has inflated health care demand, thus spiking the price.
While we’re going down the road of government involvement in our economy, we can also illustrate how the government is extremely slow and ineffective in responding to other crises. For example, remember Hurricane Katrina? Not only was the federal government slow in getting to New Orleans to help people, it was ineffective in distributing the FEMA trailers afterwards. Now, we want this type of management to ‘butt into’ the housing market?
Let’s face facts, the housing market is better off without government interference.
There are many factors to blame for the rising foreclosure rates in the US. First, irresponsible people should have expected that if they got a mortgage that they could not afford (either now, or in the future), they would lose their home. These people should not be rewarded with taxpayer money. Otherwise, what is there to stop them from doing this again in five or ten years? This could even encourage people who reconsidered making a poor investment to change their minds in the future with the backstop of the federal government being presented as a means of bailout.
Many liberals argue that while they may agree with my logic, this specific circumstance involves people’s ‘livelihoods.’ While losing a home may be a major loss, the foreclosed family still has the option to rent or live with other friends and/or family members. If the situation was as personally dire as the liberals have pointed out, wouldn’t we see a surge in the homeless population nationwide? Instead, we have seen a surge in the number of renters (returning to historical levels) as families cope by finding acceptable alternative living methods.
Another group of players that cannot be ignored in this conversation are the banks that intentionally gave out the bad loans. Aside from the Freddie and Fannie debacle (which I will discuss in my next blog), bailing out distressed home owners also bails out these bad banks. With this bailout, your tax dollars will go to irresponsible home owners to be paid to irresponsible lenders (unless they decide to buy an HDTV). Where is the disincentive to stop this type of behavior? Now, the government, in its infinite wisdom of wanting to help people, has inadvertently encouraged bad business and irresponsible spending.
The bottom line is that the system needs another one to three years to work itself out. People who are not responsible enough to own a home should find an alternative means of housing. Bad banks that overleveraged on bad loans should be able to fail and set an example to the surviving banks on what irresponsible banking will lead to. Finally, our tax dollars should stay right where they are (wherever the hell that is) and not be handed over to ‘distressed homeowners’ and bad banks for bailouts.
On Saturday, I will address the Fannie/Freddie bailout and why I am opposed to it.
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