Monday, September 29, 2008

Let Them Fail!

I swear, if I hear one more person say this was "unfettered, unregulated capitalism," I'm going to kill a puppy.

The current mess would never have occurred in the absence of ill-conceived federal policies. The federal government chartered Fannie Mae in 1938 and Freddie Mac in 1970; these two mortgage lending institutions are at the center of the crisis. The government implicitly promised these institutions that it would make good on their debts, so Fannie and Freddie took on huge amounts of excessive risk.

Worse, beginning in 1977 and even more in the 1990s and the early part of this century, Congress pushed mortgage lenders and Fannie/Freddie to expand subprime lending. The industry was happy to oblige, given the implicit promise of federal backing, and subprime lending soared.

This subprime lending was more than a minor relaxation of existing credit guidelines. This lending was a wholesale abandonment of reasonable lending practices in which borrowers with poor credit characteristics got mortgages they were ill-equipped to handle.

Once housing prices declined and economic conditions worsened, defaults and delinquencies soared, leaving the industry holding large amounts of severely depreciated mortgage assets.

The fact that government bears such a huge responsibility for the current mess means any response should eliminate the conditions that created this situation in the first place, not attempt to fix bad government with more government.

The only thing he left out was the Federal Reserve keeping the whole scam going by lowering the Federal funds rate 11 times, from 6.5% (May 2000) to 1.75% (December 2001) and then dropping it to 1% in 2003.

The fed was spewing money into the housing market like a fire hose while the social engineering in congress assured that unqualified buyers would get the loans. The only thing unfettered and unregulated was the government's intervention in the housing market, a power I do not see delegated to either congress or the executive in article 1 or 2 of the Constitution.

The were plenty of banks, like BB&T, who stayed out of subprimes and are doing OK even in the current lunacy. There are plenty of people like me who didn't buy a house they couldn't afford or invest in financial chimera they didn't understand. Banks like BB&T should not have to pay with punishing regulation for something they didn't do and regular people should not be handed a bigger tax burden for someone elses mistakes. No matter how much it gets dressed up doing more of the same is only going to make it worse in the long run.

Let them fail!

No comments: