Have you seen this pattern before?
- The government enacts new laws that subvert natural behavior for the good of society
- The government waits for this subversion to create a crisis
- The government rushes in to trade your liberties for security from the crisis
We saw this pattern seven years ago. Leading up to 9/11, the government willfully ignored the threat of terrorism. I suppose the excuse was to keep people of the world happy with America. We wouldn’t want to upset other countries by responding to attacks by terrorists. Unfortunately, this timebomb went off in the most spectacular way. And many of us rushed to hand over out liberties to protect us from another attack.
We’re seeing it again. About 16 years ago, the government started enacting policy to force lenders to stop “discriminating” against high risk borrowers. They appealed to a sense of egalitarianism and argued that everyone deserved a chance to own their home. They made it so that it was impossible to be a lender and refuse to lend to people who obviously could never pay back the loans.
The fruit of this misguided vine began to ripen over the past year or so as we’ve seen defaults rise. The government has been trying desperately to push back the tide with mountains of interference in the markets. In recent years they have been pushing the prime rate down in an effort to draw capital into the market and cover for mounting losses. Now we’ve reached the end of the line. The waiting is over and we’ve got the crisis.
Naturally, our most visible representatives of government, presidential candidates McCain and Obama, are offering the bargain that always comes in part three of this pattern. They spin a story about how businessmen have acted like gamblers, recklessly risking everything on higher profits. And now is the time, they say, when government must step in and take control. McCain went so far as to call for the firing of the head of the SEC, a position that the president cannot hire or fire. Furthermore, when both parties are offering the same solution with only degrees of severity to distinguish them, it’s likely they are wrong.
The people who need to get pink slips work in the House of Reprentatives and the Senate. They are the real source of this crisis. They pass the laws that screw up the natural market forces. They approved Greenspan and Bernake as successive chairmen of the Federal Reserve. It was under their watch that the Fed published guidelines such as Closing The Gap:A Guide To Equal Opportunity Lending. On page 15 of this document, there are the following guidelines for lenders, including this insane paragraph about sources of income (emphasis mine).
Sources of Income: In addition to primary employment income, Fannie Mae and Freddie Mac will accept the following as valid income sources: overtime and part–time work, second jobs (including seasonal work), retirement and Social Security income, alimony, child support, Veterans Administration (VA) benefits, welfare payments, and unemployment benefits.
Any reasonable person would conclude that being on welfare or drawing unemployment is a sure sign of someone who will likely not be able to make mortgage payments!
What we desperately need now is a swift pullback of control of the markets. Losers need to fail now, more than ever. We should not be swayed by the creators of crisis offering to bail us out. We should not believe them when they say, “we just need to suspend the constitution until we fix this.”