Tuesday, April 15, 2014

Stop Complicating Home Finance

The US Senate is presently putting together what reads like Obamacare for Mortgages, a fiendishly complicated bill that will privatize, yet super-regulate home mortgages -- with a ton of special subsidy programs to queer the whole thing into a nightmare.  At least that's what the Wall Street Journal reports.

So the political elite hasn't learned from the Great Crash of 2008.  And no wonder.  Democrats have been indefatigable in blaming greedy bankers for the problem, rather than face the truth, that the deliberate federal policy to subsidize home mortgages forced bankers to extend loans to people that couldn't afford them.  If you read The New York Times and listen to NPR you wouldn't have a clue about what really went down.

It gets worse.  Here's a report on some focus groups of Option-ARM mortgage borrowers conducted for now-defunct Washington Mutual back in 2003.  The borrowers really had no clue what they had signed up for, with low payments and negative amortization for now followed by huge increased payments later on.  They knew they had a great deal -- for now -- but really weren't thinking too hard about what came later.

Yes.  WaMu was staggeringly negligent in pushing out mortgages to people that didn't have a clue what they were getting into.  But WaMu was just dutifully implementing national policy, pushed  by liberals for a generation.  It started with liberal activists complaining about "red-lining" in the 1970s.  Red-lining referred to the reluctance banks showed in loaning money on inner-city homes.  And why not?  Decaying inner city neighborhoods are not the place to loan money on demand deposits. It's simple prudence.  So we had to make sure that a certain share of mortgages went to "sub-prime" borrowers.

Because liberals are smart and compassionate.

And when the whole thing blew up, liberals blamed the greedy bankers.

Yes, of course the bankers were greedy.  Anyone that works close to government is greedy, because there's a lot of free stuff going on if you are smart enough and pushy enough to get in line for the handouts.

Given the financial ignorance of most people, the government's role should be to regulate the financial system to make it as simple as possible.  But that would make it harder to buy peoples' votes and hand out free stuff.

Given the financial ignorance of most people, we should reform the home mortgage business to remove the subsidies, to disabuse people of the notion that their homes are an "investment."

Given the financial ignorance of most people, we should get the government out of mortgage finance.

But the realities of legislating means that any reform of Fannie and Freddie will have to buy off the powerful special interests, in finance, in real estate, and in the liberal activist community.

Which means that the cure will probably be worse than the disease.

The real cruelty of the Liberal Century is the idea that government can be smart and intelligent -- if run by intelligent, large-minded people with the help of rational experts.

No it can't.  That's what we know now after a century.  Governing makes you dumb.  Governing makes you stupid.  Government makes you cruel.  You can take the largest-minded person in the world, but if you put them in charge of a government or a government program, they will turn out stupid.

This is not rocket science.  Government is force; politics is division.  When you put government in charge of something it will turn it into a bureaucratic monstrosity, pushing people around.  And the politicians will be figuring out how to divide people and how to buy votes with the money sloshing around in the government program.

Suppose the program turns out to be a complete mess?  How do you unwind the mess of bureaucratic rules; how do you persuade people to give up their nice little subsidies?

Exactly.  You can't.  Short of Armageddon, people are going to demand to keep their goodies.

They will keep on demanding their goodies until the invading soldiers are going house to house raping the women, and the question is no longer subsidies and handouts, but getting food to stave off starvation.

Meanwhile the mortgage mess remains a mortgage mess.  Thanks a lot, liberals.

1 comment:

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