Sometimes Nothing is the Right Thing to Do

I have always been committed to the principle that it is not the duty of government to bail out and reward those who act irresponsibly, whether they are big banks or small borrowers.
John McCain

Despite the fact that Senator McCain has said the economy isn’t his strong point, he has a lot stronger grasp of basic economic principles than anybody else running for president, not to mention a lot of other people in Washington who ought to know better.

In addition to the Bear Stearns bailout, since the beginning of the year, the Fed has loaned over $260 billion to banks that got into financial trouble by making bad mortgage loans. The Foreclosure Prevention Act of 2008 is on the horizon, and there’s another bill lined up behind it to extend an additional $300-400 billion in federally guaranteed (that means guaranteed by you and me) mortgages for people who overextended themselves to buy houses that were well beyond their means.

Senator Obama talks about “folks [being] tricked into purchasing loans they can’t afford.” Both Senators Obama and Clinton think we need to kick in a $30 billion dollar emergency housing fund (at taxpayer expense) to help bail out these poor victims, never mind that they’re victims of their own greed and irresponsibility. Senator Clinton also wants to freeze subprime mortgage rates and impose a 90 day moratorium on foreclosures for the poor dears. And, earlier this week, Senator Clinton suggested that perhaps the government should start buying up foreclosed homes. It’s not enough for the government to be in the healthcare business, now she wants to get it into the real estate business, too. (Is there any business Mrs. Clinton doesn’t think the government should be in?)

While Senators Clinton and Obama are leaping over one another trying to come up with more innovative and expensive ways for the government to manipulate the housing market, Senator McCain is quietly saying it isn’t the role of the government to bail out either the banks or the borrowers. The Democrats scoff. Democratic National Committee Chairman Howard Dean sneers that McCain is taking “the same hands-off approach that President Bush used to lead us into this crisis.”

What the Democrats fail to understand is the basic principles of economics. (But what else is new?) It was not a “hands off” policy that got us into this mess, but a “hands on” policy of lowering interest rates and expanding FHA, FNMA, and FHLMC financing to encourage unprecedented (and unwarranted) growth in the housing market. The government got us into this situation by meddling in the free market. It isn’t going to get us out by meddling more. What needs to happen is the market needs to find a balance where the demand meets the supply. The only way for that to happen is to let it occur naturally. Yes, it means housing prices will drop. They’re doing that anyway. Yes, it’s painful. But it has to happen.

Federal policies aimed at making it easier for first time home buyers to buy houses before they could actually afford those houses led to an artificially high demand, which artificially inflated prices. People (and financing companies) started playing fast and loose, speculating that the manic spiral in home prices would continue indefinitely. But it couldn’t. Supply increased to meet demand, interest rates went up, people who overextended themselves couldn’t meet their payments and started defaulting, demand fell off just as supply was peaking, and the market was oversaturated. Now it has to correct.

The laws of economics weren’t made up by economists, any more than the laws of physics were made up by physicists. These “laws” are based on observation and analysis of naturally occurring phenomena. They can’t be changed or wished away. Imbalances do occur but, over time, they correct themselves. The housing market is self-correcting now. It will eventually reach equilibrium. Any measures that attempt to forestall that will only postpone the inevitable. A problem deferred is not a problem solved.

The Democrats insist that the government can’t just stand by and do nothing. Something bad is happening. We must do something! Anything! They have no idea how to solve the problem, because the problem can’t be solved by more government meddling, and government meddling is the only thing they know how to do. But, since they can think of nothing more embarrassing than standing around doing nothing, they’re leaping over each other trying desperately to show us that they will do something. (Not nothing, like Senator McCain.) And what they’ll do is what they always do. When they see a problem, they throw money at it. Your money. My money. Everybody’s money. Unfortunately, that won’t solve the problem. Because, sometimes, nothing is the right thing to do.

The Democratic response, as usual, is like a parent with a spoiled child. They think it’s their job as parent to prevent their child from ever experiencing any pain, so they go to any lengths to shield it from the consequences of its own actions. But a child who never faces consequences never learns. Sometimes pain is necessary, especially when it’s a natural consequence of irrational behavior.

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23 CommentsLeave a comment

  1. If government isn’t supposed to bail out the big or small, why do they time after time bail out the irresponsible–starting with unwed pregnant teens and women? The lack of a $4.95 box of condoms leads to a very expensive societal bill in the end (hospital costs, ongoing food subsidization,eventual return to school, kid eventually going to jail, etc.) , and if you multiply this times the number of unwed teens we’ve bailed out since The New Deal, you begin to see where some of our money went, and keeps going budget after budget. This is just ONE aspect of our “faith-based” system that could use a serious overhaul.

  2. You’re absolutely right, Wenchypoo. I blogged about this in Poverty is Increasing – And it’s Our Fault and How to Stop Propagating Poverty. But, if there’s one thing liberals hold sacred, it’s the idea of a free lunch. (Of course, nothing is ever free, but the illusion is easily accomplished through a little redistribution of wealth…)

  3. The idea that the “laws” of the free market are the same as the laws in physics or other sciences is just ridiculous. I’m constantly amazed at how many of you “conservatives” worship at the altar of the free market. It’s crazier to watch than the most outrageous televangelist on TV.

    It was none other than the Fed and the Bush Regime that pushed ARMs to the hilt earlier this decade & much of that (not only that though) led to this current housing crisis. The govt. therefore IMO, holds *some* of the responsiblity and the blame for cleaning this mess up. It’s just that simple.

    I completely agree though that Sen. McSame (as in same as Bush) is at least honest that he has virtually no plans whatsoever to deal with the many problems that this country faces, but that’s your side’s problem…not mine.

  4. Well, Mr. Guy, for once, we seem to agree. Not about the laws of supply and demand, of course, but about the government being at least partially responsible for the current housing situation. Of course, the borrowers and lenders cannot be absolved of their own responsibiity for their own bad choices, and they should be held accountable for the consequences of their own poor judgment. But I agree that Bush is not, and never has been, a fiscal conservative. (I’m not a Bush supporter, BTW, so you’re shooting at the wrong target if you’re trying to hit me.) Neither am I a fan of the Fed.

    But, even though the government has played a role in creating this mess, it is simply not within the government’s power to fix the damage they’ve done. They can only do further damage by further meddling. It’s time for the government to acknowledge that it’s been mucking about where it has no business, and then back off and let the market re-esetablish equilibrium.

    Unlike President Bush, Senator McCain seems to understand that.

  5. I understand that you’re pushing McSame because he’s the only game in town at this point…good luck with that…

  6. Mr. Guy doesn’t understand. He said, “I’m constantly amazed at how many of you “conservatives” worship at the altar of the free market. It’s crazier to watch than the most outrageous televangelist on TV.”

    This is all a matter of test and analysis. If you examine the nations of the world, you discover an absolute correlation between liberty and prosperity.

    Compare the standard of living for the most dictatorial nations around – Zimbabwe or Darfur to that of the least restricted – U.S., U.K., or Switzerland. The greater freedom accorded the individual, the greater the average income and the better the quality of life.

    Examination in detail will also disclose that the relationship is constant across the spectrum, not simply at the extremes.

    The message is simple. If you want a prosperous economy, don’t impede free enterprise.

    Religion has nothing to do with it.

  7. I think you’re trying to morph freedom into free markets. Religion has everything to do with it IMO…beause you guys are contstanly making the leap of faith that the free market cures all. It doesn’t.

  8. Negative, Guy.

    I gave you demonstrable facts for evaluation and analysis. Freedom without freedom in the marketplace is a concept difficult for me to grasp. That’s not a morph. It’s a factor on the scale of evaluation of the relative freedom enjoyed in the particular society.

    Nor did I nor do I suggest that the “free market cures all.”

    The act of faith is your postulation, without evidence, that “It doesn’t.”

    Curious, in your faith, what does?

  9. LOL…my “faith” has nothing to do with which form of economy works the best…the facts do. I would be in favor of a mixed economy of both capitalism and socialism, like coincidentally Australia, the UK, Switzerland, and…surprise, surprise…the USA!! Nice try…lol… :)

    For example, the free market has failed miserably in the area of health care in this country. At some point in the future, our country will embrace what just about every other Western country in the world has embraced successfully…a single-payer health care system of some kind.

  10. It is no big surprise to me that socialism has been injected into the economic system of the U.S., Mr. G. That has been a “conservative” beef for several decades.

    What is a surprise, is your faith in an economic system founded upon a blend of principles of socialism and capitalism. To my mind this is rather like attempting to design an airplane according to a blend of engineering principles, some of which have been proven to work and some that have been proven to lead to failure. Assuming such an airplane got off the ground, it is surely doomed to disaster.

    I think your reference to health care proves the point. The one thing for certain about capitalism is that it leads to wide spread prosperity resulting from the cumulative productivity deriving from individual contribution. With the introduction of socialistic principles comes an attempt to distribute the prosperity without concommitant contribution. Net effect is a reduction in productivity. Necessarily there follows a decline in prosperity without any decline in the demand of the non-contributors for their “share.”

    Technology has turned the health care industry into a very expensive proposition. Lots of very talented people educated at great expense and working for years are required to make our current advances. It requires a great deal of prosperity to pay for it.
    That is difficult in an economic system significantly dedicated to the reduction of prosperity.

    The capitalistic part of the equation has made modern health care possible. The socialistic part of the equation has made it unaffordable.

  11. Like I said before, faith doesn’t enter the equation for me at all…the facts do. Your proof, that socialism, *not* communism, has been a “failure” doesn’t exist, period. Other countries have longer life-spans and more satisfied “consumers” of health care than we do, and they have for quite some time now. It’s just a matter of time before one of the states tries out a true single-payer type health care system and reaps the benefits of it, which include lower costs. Watch and learn…

  12. Dip into your fact catalog and produce the example of successful socialism. As to failure, try the Mayflower Compact, try the USSR, try Cuba, etc. etc. Even China was floundering until it decided to adopt capitalism.

    The only way to share the benefits of health care universally regardless of individual contribution is to tax the prosperous who happen to be the contributors leading to an additional decline in overall prosperity.

    This is an inherent, self-executing fatal flaw of the socialistic approach. Simply a matter of analysis.

    I don’t know what you want me to learn from a trial run here. I can look at Canada and draw a pretty good conclusion.

  13. Look, if I were you, I’d be upset to. You cited a whole list a countries earlier that “proved” that free markets alone worked. Well, turns out that they were all mixed econmies, which work the best. I’m sure this fact is frustrating, but to dip into the communist bin as a last resort (communism and socialism are NOT the same) is pretty sad IMO.

    As far as the Mayflower Compact is concerned, I am opposed to direct democracy…a representative democracy, like we have here in the USA, is best IMO.

    Ah, Canada, another mixed economy, one of the world’s wealthiest nations…with low unemployment, large federal govt. surpluses, huge sources of hydroelectric power (cheap, clean, renewable energy), a longer life expenctancy than the U.S., a lower infant mortality rate than the U.S……and LESS a percentage govt. revenue spent on health care than in the U.S.. Yea, it sure sucks to be in Canada…LOL!!!

  14. Communism, National Socialism, and socialism have the same DNA. Like the northern spotted owl, the California spotted owl, and the Mexican spotted owl. The difference is purely accidental, a matter of where you find them, with whatever territorial adaptions.

    What Canadian success you envision would seem to be belied by the need for Canadians to come to the U.S. to get effective health care.

  15. There is also, of course, a difference between communism and social democratic movements…you know…the ones that those mixed economies are based on…lol…

    How did I know that you’d start to fall back on the tired old tale of why Americans should be afraid of a single-payer system? And now the facts:
    -many U.S. citizens purchase prescription drugs from Canada because drug prices in Canada are substantially LOWER…to the tune of around $1 billion annually!
    -because medical marijuana is legal in Canada but illegal in the U.S., many U.S. citizens suffering from cancer, AIDS, multiple sclerosis, & glaucoma have traveled to Canada for medical treatment…one of those is Steve Kubby, the Libertarian Party’s 1998 candidate for governor of CA.

    BTW, there are other examples of single-payer systems across the entire world…not just in Canada.

  16. So much for McSame supporting doing “nothing”:

  17. Yes, I was very disappointed when I learned that McCain had gone scurrying back to retract his initial principled position after being attacked by the left. This is a problem that many conservatives have with McCain. He has a tendency to want to make friends on the left, and will (as evidenced in the past) compromise his conservative principles to do so.

    To tell you the truth, it makes it very difficult to support him. On the other hand, when I look at the alternatives, he’s still a lot better than they are.

  18. Did you ever think for second that he might have changed his mind, just like the Fed made an unusual move with the Bear Stearns thing, because the alternative is unthinkable…a complete collapse of the housing and/or banking industry in this country??

  19. […] has two on the current subprime mortgage problem. The first is Sometimes Nothing is the Right Thing to Do. The second is What’s Wrong With This Picture?. NotYourDaddy makes the claim that […]

  20. Correct me if I’m wrong, but I’ve been told that the Fed (Federal Reserve Board) is NOT a branch of the U.S. Government, but a private corporation

  21. The Fed is a quasi-public (part private, part govt.) banking system.

  22. […] read more | digg story […]

  23. […] presents Sometimes Nothing is the Right Thing to Do posted at Government is not your Daddy., saying, “While Senators Clinton and Obama are […]

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