07 May 2008

Political Subprime Madness

Unfortunately, as the subprime woes continue to play out across our country, we are faced with an ever growing possibility of the Democratic Congress using this situation as political power play for votes. The Christian Science Monitor has a solid article on how the Democrats are seriously eyeing a plan to have tax powers bail out Fannie Mae and expose citizens tax payers to increased risk that their “investments” may default. This is a terrible idea on many levels. First, we are disallowing the free market to self correct and once the government gets involved, it will not simply walk away in a year or two. Secondly, this violates a general principle of government, and that is, to do what is good for the majority of the citizens while providing the rules and laws that govern the land. In Congress’ minds, they are doing the “majority” a favor, but statistics will show a vast majority of homeowners have been exceedingly responsible and the current situation, in terms of sheer percentage of foreclosures, does not directly impact a vast majority of the nation. To step in and bail out a select few is yet another way the government is looking to choose winners and losers.

Is it really fair to allow this bail out to assist only those who were irresponsible enough to engage in bad loan behavior in the first place while charging responsible entities extra tax dollars to “correct” the problem? Bad decisions were made both on the part of lenders as well as borrowers and the lessons learned will undoubtedly self correct in short order, that is, of course, if the government does interfere. Additionally, as we see ballooning deficit spending, the government would be extremely irresponsible by exposing itself and the tax payers to high risk loans.

If individuals wish to engage in high risk loans they should rightfully be compensated, the higher the risk, the higher the interest paid and this “investment” would be much riskier than junk bonds. It is the not government’s role to fulfill the type of function they are dangerously close to undertaking. As they pour tax dollars into this program they will widen the deficit. An agency as dysfunctional and wasteful as the federal government has become has no logical reason to get involved in this situation without further damaging itself. If this were even a case of a simple shift in tax dollars in one area to another, I would still oppose this measure. Worse, it will create yet expenditure without a corresponding cut in spending. All for votes. Are we left with no statesmen or even rational politicians?


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