This essay was originally published in October 2008…just after the mortgage meltdown and the government fixes to the government fix. When the Politically Empowered site move to Word Press this essay along with others did not move to the new site. I will eventually republish them on this site time allowing. This one is still relevant especially coming to the end of the Obama era…an end that will not be mourned by me and many others.
We’ve all learned either through osmosis or chemistry class that you do not mix ammonia and bleach. If you don’t know this, then I will tell you now that it gives off deadly chlorine gas. Wow. All you have to do to live is NOT mix the two. It is toxic brew not to be messed with. Everybody (actually anyone that has some astuteness about them) knows this.
We run into another toxic mix with government and business. We have seen the markets almost melt down in the past two weeks due solely and only because government has interfered into the mortgage market.
What was probably at one point a very benign purpose, full of goodwill and “look what big government can do to help our fellow man” type thinking. It turned out to be not so benign. What was the cute little puppy grew up to be a rabid dog.
Now there is no politician especially on the Democrat side that would admit that the government could be at fault…of course not! “It is the corruption on Wall Street. It is big business, big banking once again!”
“Government is doing good, we were doing GOD’s work.”The free market, on its own, would not provide for those poor slubs that have been being kept down by ‘the man’. These poor stupid bastards will never make it on by themselves, so we have to help. Government is being … compassionate!”
We only have to study the past history of Europe where the government was the Church or the Church was the government to see the abuses of force combined with faith. Just look to the Middle East where the law is the religion; it is Europe in the middle ages. Look at any socialized (whether National Socialist or Marxist) government to gaze into a black abyss.
The former is the toxic mix of government and religion. The latter is the toxic mix of government and business.
We live in a unique time (though soon to be coming to an end if the trend is not reversed) where riches are for the most part earned by hard work and producing a product that can be exchanged for another value. It is a meritocracy. Sure the government needs to take part of the credit because of the functions granted to it by the Constitution. The summary of these functions is given in the Preamble.
How could it be that the U.S. in a mere 200 years could go from a totally broke, severely in debt government to the premier economic and military power in the world; the richest country that ever was? Economic and political freedom.
The Federal governments powers are limited to those that were GRANTED by the Constitution; very limited, enumerated powers.
This allowed a free market place to flourish. The market place is kind of like a river. Capital flows to those places that are shown to be the most promising. It flows to innovation, to originality, improvement, modernization and novelty. Capital is cautious until a product is proven and ready to roll out.
When government enters this arena it distorts the market in wildly unpredictable ways. It is like putting in a dam. Things back up and flow in unpredictable directions. This is what happened in the mortgage market.
With the benign intention to put lower income people into home ownership standards for lending were lowered. Pressure was applied by bureaucrats and elected officials in the Federal government to lenders demanding these lower these standards. Lenders were accused of “red lining” and being racist for not lending to those “in need” of a home loan.
Freddie Mac and Fannie Mae were encouraged by members of Congress to buy these sub-prime loans from banks and mortgage lenders. After a time, instead of making a profit from the interest on the loan, the banks and other lenders made their money up front with a plethora of fees and then sold the loan to Fannie and Freddie. Then it really didn’t matter anymore whether or not there were standards. The banks could make money with fees and have the money back in their pocket to loan out again.
Who cares if the loan defaults, Fannie Mae or Freddie Mac paid us for it…we got ours … and kept the regulator off our backs (double win!). Well, the sucker is you and me. We are the ones paying for it.
After the government makes the problem, it then institutes “regulation” of this “greedy” industry (Dodd/Frank) and so covers the politician’s ass. Banks now spend an extraordinary amount of time just trying to comply with regulation rather than just running their business.
What we get then is greater distortion (or suppression) of a relatively straightforward industry. It will be harder to get credit, taxes will be raised, and innovation stifled.
Do you want to be a third world country? We are well on the path.