13 March 2009

This market is the result of a stimulus organ

I heard a clip of His Beatitude on the radio this morning, saying that the economy is not as bad as we think it is. Indeed, he said, the economy is never as good as we think it is, and is never as bad as we think it is. This, from one who won an election based, among other things, upon the claim that the economy is the worst it's been since the Great Depression.

Now, it's not really that bad. But we still need another stimulus organ.

As talk goes on about this new stimulus organ, we ought to consider the fact that this market is the result of a collapsed housing market, a housing market which was the result of a previous stimulus organ. The CRA, along with Fannie Mae and Freddie Mac's implicit-turned-explicit mortgage guarantee, created an artificial demand for housing, a demand which should not have existed. In true, government-driven-demand fashion, the push for "affordable" housing and "non-discriminate" lending encouraged lenders to lend money to people who otherwise wouldn't get loans. This was all government stimulus to the max. When the goal -- a government-mandated goal -- is simply to increase home-ownership, the question is no longer, "Who can afford a home, and at what price?" but, "Who can be put into a home, and how?" And trouble is just a matter of time, the only question being, "Who's going to be without a chair when the music stops?"

Hint: It's never the one playing the music. And in this case, the unfederal government was playing the music.

On one hand, the unfederal government has made clear it will go after you if you aren't doing enough affirmative action lending, and acknowledged you'll take a loss on these loans due to an increase in defaults:



(H/T: Hot Air)

Then, on the other hand, government sponsored entities, which, between the two of them, had already purchased or guaranteed about half of the U.S.'s $12 trillion mortgage market, have effectively told you not to worry about the bad loans you've made because they will be guaranteed by the unfederal government, there's not much reason for not granting the loans -- quite the contrary, in fact. (Important point: some of the loans you don't grant to people who can't pay them will get you hauled into court, accused of discrimination based on race.)

Of course, now we know that when the music finally stops, you and your fellow bankers will be left standing without a chair, blamed for the financial ruin which was always only a matter of time. And, of course, the unfederal government, which just about single-handedly creating this mess by commanding bad loans to be made, will be wagging its finger at you, crying, "For shame, for shame."

To add to the spectacle, while the government is wagging its guilty finger at you, some of your compatriots in the lending business will have their hands thrown up in the air, claiming not to know how you could have been so unscrupulous as to lend money to people who couldn't pay it back. (Transcript, here.)

And then, as if the spectacle isn't sick enough, those for whom hatred of capitalism is a religious conviction, call it all proof positive that, despite a mixed economy, capitalism -- not government involvement -- doesn't work, that, with 73 thousand pages of federal regulations, there is not enough regulation. (They do the same thing with healthcare. It's never the government involvement; it's always the capitalism.)

It's a simple thing, really, and easy to grasp. Government cannot create demand; but it can exaggerate demand.

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About Me

James Frank SolĂ­s
Former soldier (USA). Graduate-level educated. Married 26 years. Texas ex-patriate. Ruling elder in the Presbyterian Church in America.
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