our present troubles

“It is no coincidence that our present troubles parallel and are proportionate to the intervention and intrusion in our lives that result from unnecessary and excessive growth of government.”
–Ronald Reagan, Inaugural Address, 1981

I don’t think BO actually cares about growing the economy, he’s given no indication that creating private wealth and opportunities are important goals of his administration. He seems much more concerned with thwarting entrepreneurship and crushing American enterprise. Fast. But if he did care about the private sector and creating new jobs (rather than the temp jobs of his so-called stimulus package), the first thing he should do is ask the country to retrace its steps, to go back to the beginning of our problems. Bailing out a sinking boat doesn’t work unless you plug the leaks first, no matter how many billions you spend. This is common sense stuff, Barry. So let’s start at the beginning. The current economic crisis is a result of government interference in our banking industry. Try hard to dispense with your immediate liberal, knee-jerk reactions for a moment. Yes the banks and Wall Street played a role, but let’s be honest, this house of cards was encouraged, and in a very real way, mandated by government policy.

When Jimmy Carter signed the Community Reinvestment Act, he created the situation that led to the mortgage crisis — this law encourages banks to grant loans to people with low income and little credit. Carter didn’t intend to ruin our economy or our retirements, but then again, Carter didn’t know what the hell he was doing. You cannot tell the banks to make bad loans. Again, Barry, this isn’t complicated. The goal of government at this time should be to encourage banks to go back to the basics — you don’t make risky loans unless you attach a high interest rate and demand lots of collateral. Carter’s plan undermined this common sense approach to banking — it forced banks to make bad loans to people who could not pay them. In essence it was a bill that forced the banks to fail. Bill Clinton also played a role in this creating this crisis when he expanded the Community Investment Act in 1995. According to Senator Richard Shelby (R-AL), “Federal policy, not free market decisions, fueled risky loans to unqualified borrowers.” It was George Bush and John McCain who warned of an impending housing disaster if steps were not taken to reform the system. Representative Barney Frank and Senator Chris Dodd failed to respond to these warnings.

We act as if the borrowers of these funds themselves have no responsibility for their own situations. If I took out a loan I could not pay back, I’d have no one to blame but myself. If you’ve ever bought a house, you know all of the disclosures mandated. These are adults, not children. So let’s stop the whole paternalistic BS. They can read. If they can’t understand what a variable interest rate is, then they shouldn’t be signing the papers or buying a house in the first place.

What the government has done is undermine the very foundation of free enterprise, the private banking system. Nationalizing the banks isn’t the solution. Crony capitalism doesn’t work — just ask Japan. You don’t want your banks and your politicians in bed together — that’s how we got into this mess. Thus the policy of interfering in the normal process of granting mortgages based on income and risk needs to end. Banking regulations need to be stiffened. Homeowners must have verifiable income, must bring a significant down payment to the table, and variable interest rates need to be the exception, not the norm. I opposed the initial $700 billion bailout in September because it just threw money at failing banks without addressing and undoing the underlying cause of their failure. People should not be given loans for homes they cannot afford and cannot pay back. Not everyone will own a home in our society. And that’s not cruel to say. Not everyone is responsible. Not everyone is hard working or able to stick to a budget. Yes we hope that most Americans will be homeowners, it is part of the American dream. But that dream must be attained by hard work, thrift and personal initiative, not by government fiat.

Required reading: Thomas Sowell’s brilliant article, Subsidizing Bad Decisions.

Update (10/22/09): Haven't we learned anything from the real estate meltdown?