Wednesday, December 12, 2007

Goldwater Institute: Big Brother Bailout

Government tampering with subprime loan industry not advised

By Tom Patterson

Here's a seldom-reported fact. Our recent housing bubble was caused by government. The intended consequence was to stimulate the economy. But below-market interest rates produced above-market real estate values.

Now the government seems determined to help us out of this crisis. Rep. Barney Frank, D-Mass., has proposed a bill that would fix the mortgage market with regulations. Hillary Clinton wants a 90-day moratorium on foreclosures and a five-year freeze on mortgage rates. Treasury Secretary Henry Paulson's more modest plan is to persuade lenders to forego any interest rate adjustments on subprime mortgages. But these are all just temporizing measures. If we want to keep mortgage holders in homes they can't afford, eventually a taxpayer bailout will be required.

The justification for the various subsidies and moratoriums is that they would prop up the housing market and prevent the economy from tumbling into a recession. Maybe they would. But these solutions actually perpetuate the conditions that caused the bubble and keep the market from making the necessary adjustments.

Beyond unintended consequences, there are issues of fundamental fairness. Why should homeowners who deferred other expenses and selected a house within their means subsidize those who did neither? Should people be entitled to relief if they have a subprime mortgage that they can afford? Should borrowers get help with a mortgage they received in the first place because they lied about their income?

All the cures are worse than the disease. Whether we're forcing government or rich lenders or Wall Street to pay really doesn't matter much. The bailout schemes reinforce Americans' belief that the consequences of risky behavior should be borne by government. Government should assure transparency, prevent fraud, honor contracts and butt out. For once, let the markets work.

Tom Patterson is chairman of the Goldwater Institute, a former state legislator and emergency room physician. A longer version of this article originally appeared in the East Valley Tribune.


AZDream said...

In a perfect world the folks in Washington would be writing a bailout plan that REQUIRED banks to lower and fix adjustable rates and renegotiate mortgages so the homeowner could avoid losing their home. If the Banks only want to write off part of the difference, they can put a silent second that provides for the bank to be paid back the silent second if & when the homeowner sells and has proceeds over and above the silent second.

This is not a one size fits all model for folks facing foreclosure. I have put together other models banks could offer depending on the homeowner's situation. In some situations banks could do a five year lease and turn the family over to a non-profit that can help them become loan ready to purchase their home back at the end of the lease. Keeping families in their homes is a huge step towards a recovery! It would have a positive economic impact starting with stabilizing the surrounding property values and preventing the blight and crime abandoned homes suffer and cause today.

Instead, we have the very picture of lifeguards rescuing the sharks while “We the People” are left bleeding and dying in the water. Doesn’t this “hurry up and approve the Emergency Bailout” rhetoric remind you of the “we must go to war because there are weapons of mass destruction...” line we were force fed? If this bailout plan passes, know for certain that “We the People” have been sold out!

As individuals we can never compete with the deep campaign contributing pockets of the special interest groups, but come time to vote we can sound out and clean house. The sell-outs will no doubt stand out notably and we should not forget who they are. Let's take our privilege to vote and seriously consider replacing the old guard with folks who respect and hold sacred their pledge to serve "We the People".

Anonymous said...

Well said.

It is amazing that as this bail out, now marketed under the name "rescue plan" has progressed, marketing the plan seems to be the latest technique for making this more easily swallowed by the people.

Now our legislators are trying to "sweeten" the deal by giving us back, by why of "tax breaks," a small portion of our own money. I would call this a bribe but because it is my/our money this would be adding insult to injury. But wait, THAT’S WHAT IT IS!