Amidst all of the overheated rhetoric about the financial crisis and the bailout plan from people who likely couldn't balance a checkbook without assistance, there are few voices of sanity. All anyone seems able to agree on is the need to DO SOMETHING! There probably has never been a time when doing something just for the sake of doing something has ever turned out well.
I am not looking at this situation as a theologian but as a conservative who remembers what being a conservative is supposed to mean. Dr. Mohler has posted a blog article about what Christians should think facing the financial crisis. Here is a snippet...
The development of vast global economic systems simply builds upon the simple principle that all participants are willing to trade one good for another they want even more and to invest in the hope of future gain.
Is this greed? In and of itself, this is not greed at all. The desire for a profit, for income, and for material gain is not in itself greed. The Bible clearly teaches that the worker is worthy of his hire and that rewards should follow labor, thrift, and investment.
Greed raises its ugly head when individuals and groups (such as corporations or retirement funds) seek an unrealistic gain at the expense of others and then use illegitimate means to gain what they want. Given the nature of this fallen world and the reality of human sinfulness, we should expect that greed will be a constant temptation. Greed will entice the rich to oppress the poor, partners in transactions to lie to one another, and investors to take irrational risks. All of these are evident in this current crisis.
I encourage everyone to read Dr. Mohler's piece, but right now I am more concerned about what the long term ramifications of a knee-jerk government intervention that will have disastrous long-term ramifications for our economy and the financial security of our children.
There is plenty of complicity to go around. Banks made bad loan that they shouldn't have because compensation is based on a "here and now" production system that is rapidly moving to sacrifice quality of business for quantity of sales. Appraisers would value a property at whatever it needed to come in at to make sure they stayed on the approved lists (when we bought our house in Northern Michigan the appraisal came in at the exact agreed purchase price of the house, to the penny. Coincidence? I think not) The government, through meddling in the free market, has forced banks to make loans on properties that they wouldn’t normally have, to people who are not credit worthy so that they can tick off their lists for the community reinvestment act.
And *GASP* here is another huge group of people to blame: consumers who bought houses they couldn't afford. Get real, most of these people were not saying "no, no I will get the smaller house" they were buying the biggest house they could get (not that they could afford, that they could get approved for). They then took full advantage of artificially inflated housing values to pay off revolving debt and then turned around an racked up even MORE revolving debt to go along with a huge mortgage and a maxed out home equity line. With the encouragement of banks and retailers, people turned their houses upside down and shook them like piggy banks. We are now, all of us, starting to reap what we have sown. Even those who were responsible borrowers, savers, investors are feeling the bite of a financial system gone sour. Those are the facts, the question is what to do about it?
Those who claim that this crisis is a sign that deregulation and the free market don't work are fools, because we haven't truly operated in a free market when it comes to housing for a very long time. It is patently false that the free market doesn't work or that regulation helps the economy. What is true is that when government interferes and tinkers in the free market, it invariably leads to disaster. That is never truer than right now with the impending bailout deal to the tune of hundreds of billions of taxpayer dollars, drawn from the already empty coffers of the Federal government. Since when is it the responsibility of the government to prop up banks and reward consumers who have entered into bad loan agreements? It never stops. The Big Three auto makers in Detroit want government backed loans because they have become uncompetitive through sloppy management and allowing unions to wring unreasonable pay and benefit concessions from them. What are we going to do when all of the revolving debt comes to a critical mas and blows up? Is the government going to bail out Capital One and MBNA? Bail out customers who have spent billions in money they don't have? Take over the stores that have been built to meet the phony demand generated by credit card purchases? That is a huge problem, because all of these strips malls were built in large part to meet demand for products that is driven by phantom money. The real question is this: who will get left holding the bag?
There are two ways to address this "crisis". One is to increase the inefficient and politically charged interference with the lending markets and in doing so put the taxpayers on the line for hundreds of billions of dollars of debt to rescue irresponsible lending, regulation and consumers spending. The other is less politically palatable but I think makes the most sense, that is to let the chips fall where they may and let the market correct itself. Banks will collapse but be snatched up by others (like Washington Mutual and its 2200 branches being gobbled up by Chase) There are really too many banks right now anyway. Houses will be foreclosed on, but that is the unfortunate reality. If you voluntarily enter into an agreement to borrow $200,000 and pay that money back over time, and offer a bank the house you are buying as collateral, the bank can and should be able to recoup their money if you don't pay them back. Otherwise, banks will stop lending because in banking it is all about risk. Change the risk and you need more reward. Banks do not have to loan money, you do not have a Constitutional right to own a home or be approved for a mortgage. If you decrease the reward and increase the risk, people will invest their money in better investments and no one will be able to buy a house. It is a harsh reality, but homes will be lost and people will be forced to move out and it is not the governments job to prop up failed loans. This is the only way.
Otherwise we are looking at a perpetual cycle of more and more government interference. The proposals on the table include things from the government becoming a shareholder in the companies receiving aid and setting executive compensation for private companies all the way to bankruptcy judges being given authority to arbitrarily modify loan terms. This would be an enormous intrusion into the free market and would be catastrophic for our long term economy. Look to Europe and see the results of quasi-socialist businesses: enormous increases to the rolls of the permanently unemployed, months of mandatory vacation time, dying industry. We are already in a precarious position economically because of a total lack of planning in our economy. We haven't built a new refinery in decades and have closed a bunch of nuclear plants, which coupled with the failure to explore and drill for domestic oil has left us at the mercy of nations like Iran, Saudi Arabia and Venezuela who are not very friendly. High oil prices have led to much of the economic slowdown which has exacerbated the lending mess as people lose jobs or have to move and leave their mortgages behind. Our farm system is riddled with subsidies. Our manufacturing base is fleeing as fast as it can.
I am not looking at this situation as a theologian but as a conservative who remembers what being a conservative is supposed to mean. Dr. Mohler has posted a blog article about what Christians should think facing the financial crisis. Here is a snippet...
The development of vast global economic systems simply builds upon the simple principle that all participants are willing to trade one good for another they want even more and to invest in the hope of future gain.
Is this greed? In and of itself, this is not greed at all. The desire for a profit, for income, and for material gain is not in itself greed. The Bible clearly teaches that the worker is worthy of his hire and that rewards should follow labor, thrift, and investment.
Greed raises its ugly head when individuals and groups (such as corporations or retirement funds) seek an unrealistic gain at the expense of others and then use illegitimate means to gain what they want. Given the nature of this fallen world and the reality of human sinfulness, we should expect that greed will be a constant temptation. Greed will entice the rich to oppress the poor, partners in transactions to lie to one another, and investors to take irrational risks. All of these are evident in this current crisis.
I encourage everyone to read Dr. Mohler's piece, but right now I am more concerned about what the long term ramifications of a knee-jerk government intervention that will have disastrous long-term ramifications for our economy and the financial security of our children.
There is plenty of complicity to go around. Banks made bad loan that they shouldn't have because compensation is based on a "here and now" production system that is rapidly moving to sacrifice quality of business for quantity of sales. Appraisers would value a property at whatever it needed to come in at to make sure they stayed on the approved lists (when we bought our house in Northern Michigan the appraisal came in at the exact agreed purchase price of the house, to the penny. Coincidence? I think not) The government, through meddling in the free market, has forced banks to make loans on properties that they wouldn’t normally have, to people who are not credit worthy so that they can tick off their lists for the community reinvestment act.
And *GASP* here is another huge group of people to blame: consumers who bought houses they couldn't afford. Get real, most of these people were not saying "no, no I will get the smaller house" they were buying the biggest house they could get (not that they could afford, that they could get approved for). They then took full advantage of artificially inflated housing values to pay off revolving debt and then turned around an racked up even MORE revolving debt to go along with a huge mortgage and a maxed out home equity line. With the encouragement of banks and retailers, people turned their houses upside down and shook them like piggy banks. We are now, all of us, starting to reap what we have sown. Even those who were responsible borrowers, savers, investors are feeling the bite of a financial system gone sour. Those are the facts, the question is what to do about it?
Those who claim that this crisis is a sign that deregulation and the free market don't work are fools, because we haven't truly operated in a free market when it comes to housing for a very long time. It is patently false that the free market doesn't work or that regulation helps the economy. What is true is that when government interferes and tinkers in the free market, it invariably leads to disaster. That is never truer than right now with the impending bailout deal to the tune of hundreds of billions of taxpayer dollars, drawn from the already empty coffers of the Federal government. Since when is it the responsibility of the government to prop up banks and reward consumers who have entered into bad loan agreements? It never stops. The Big Three auto makers in Detroit want government backed loans because they have become uncompetitive through sloppy management and allowing unions to wring unreasonable pay and benefit concessions from them. What are we going to do when all of the revolving debt comes to a critical mas and blows up? Is the government going to bail out Capital One and MBNA? Bail out customers who have spent billions in money they don't have? Take over the stores that have been built to meet the phony demand generated by credit card purchases? That is a huge problem, because all of these strips malls were built in large part to meet demand for products that is driven by phantom money. The real question is this: who will get left holding the bag?
There are two ways to address this "crisis". One is to increase the inefficient and politically charged interference with the lending markets and in doing so put the taxpayers on the line for hundreds of billions of dollars of debt to rescue irresponsible lending, regulation and consumers spending. The other is less politically palatable but I think makes the most sense, that is to let the chips fall where they may and let the market correct itself. Banks will collapse but be snatched up by others (like Washington Mutual and its 2200 branches being gobbled up by Chase) There are really too many banks right now anyway. Houses will be foreclosed on, but that is the unfortunate reality. If you voluntarily enter into an agreement to borrow $200,000 and pay that money back over time, and offer a bank the house you are buying as collateral, the bank can and should be able to recoup their money if you don't pay them back. Otherwise, banks will stop lending because in banking it is all about risk. Change the risk and you need more reward. Banks do not have to loan money, you do not have a Constitutional right to own a home or be approved for a mortgage. If you decrease the reward and increase the risk, people will invest their money in better investments and no one will be able to buy a house. It is a harsh reality, but homes will be lost and people will be forced to move out and it is not the governments job to prop up failed loans. This is the only way.
Otherwise we are looking at a perpetual cycle of more and more government interference. The proposals on the table include things from the government becoming a shareholder in the companies receiving aid and setting executive compensation for private companies all the way to bankruptcy judges being given authority to arbitrarily modify loan terms. This would be an enormous intrusion into the free market and would be catastrophic for our long term economy. Look to Europe and see the results of quasi-socialist businesses: enormous increases to the rolls of the permanently unemployed, months of mandatory vacation time, dying industry. We are already in a precarious position economically because of a total lack of planning in our economy. We haven't built a new refinery in decades and have closed a bunch of nuclear plants, which coupled with the failure to explore and drill for domestic oil has left us at the mercy of nations like Iran, Saudi Arabia and Venezuela who are not very friendly. High oil prices have led to much of the economic slowdown which has exacerbated the lending mess as people lose jobs or have to move and leave their mortgages behind. Our farm system is riddled with subsidies. Our manufacturing base is fleeing as fast as it can.
We are in trouble. But the government should not and cannot bail us out without causing us even greater trouble down the road. Unless we want to end up a country with a third world economy and a super power military, we need to let the market correct itself and have less government interference, not more.
(In the spirit of full disclosure, I am a banker so I am intimately involved in what is going on even though my bank is very stable)
(In the spirit of full disclosure, I am a banker so I am intimately involved in what is going on even though my bank is very stable)
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