[b]Disclaimer:[/b] I’m not blaming any particular politician or office holder (neither President Clinton nor President Bush, for example), but rather showing the absolute lunacy in expecting government to solve personal problems or to meddle in private citizens’ affairs.
[b]Rewind the clock to the early 1990s:[/b] President Clinton, with the blessing of both Republicans and Democrats in Congress, advanced an agenda which they called, [i]The National Homeownership Strategy: Partners in the American Dream.[/i] (Do a Web search.) In short, it encouraged mortgage lenders to loosen-up their requirements for those seeking mortgages, thus making home ownership available to those who otherwise wouldn’t qualify – in other words, for those who couldn’t afford it.
The government, as a result, relaxed requirements for the federal guarantee on those mortgages: lowered income to payment ratio, relaxed income verification, reduced (or eliminated) down payments, etc. Mortgage lenders, as ones who issued those government backed loans, were encouraged – or possibly directed – to follow suit. (I say directed to follow suit because those lenders had to follow government rules if they wanted to continue to be able to issue FHA loans.)
[b]Fast forward to 2000:[/b] The National Homeownership Strategy: Partners in the American Dream, is a [i]”….. public-private partnership working to dramatically increase homeownership opportunity in America. Under the directive of President Clinton, the Partnership was formed in 1995 by nearly 60 national organizations that care about homeownership. Today, the Partnership consists of 66 members representing lenders, real estate professionals, home builders, nonprofit housing providers, and federal, state and local governments.
HUD Secretary Andrew Cuomo said: ?The good news as we mark National Homeownership Week is that homeownership in America is at record levels. But the bad news we face is that many of HUD?s homeownership and other programs are under attack by some members of Congress. The success of our homeownership initiatives proves that HUD in combination with local organizations can further our goal of even more homeownership and fulfill our commitment to liberty and equity for all.? [/i]
Okay, isn’t that nice? I wonder? Who were those members of Congress “attacking” it? What were they attacking? And what were they predicting?
[b]The immediate results:[/b] As a result of a huge increase in demand against a limited supply, home prices (and values) rose dramatically. In addition to the injection of even more home buyers (unqualified home buyers) into the market, many people used those increases in their home values to refinance other debt into the more attractive (tax deductable) mortgage debt. Moreover, mortgages are bought and sold on the open market, as they always have been. Historically, behind Treasury Bills, Mortgages were among the safest of all investments to buy. As a result, many investment banks bought those mortgages (government-backed mortgages, by the way).
[b]The eventual (and inevitable?) repercussions[/b]: People began defaulting on mortgages they couldn’t afford in the first place. Banks and Mortgage lenders were foreclosing at record levels. (Foreclosures are always a lose-lose proposition for both the buyer and the lender.) Home values began to plummet. Mortgage investments were losing value.
[b]Fast forward to today:[/b] The government, with the blessings of Republican President Bush and a Democratic Party controlled Congress, is now in the process of bailing-out mortgage lenders who made bad loans to people who couldn’t afford them in the first place. Moreover, investment bankers, who are also facing a huge crisis – because of the defaults on the mortgages they purchased – are also being discussed as possible government bail-out candidates. (Can you say 401(k) accounts?)
[b]Who’s to blame:[/b] Of course, [i]greedy[/i] mortgage lenders and [i]unscrupulous[/i] investment bankers are the easy targets. They’re the ones currently being demonized, aren’t they? They’re the only ones being blamed, aren’t they? Why not blame a meddling government? After all, who’s more to blame, business or government? Or why not blame borrowers who had to know they were buying something they couldn’t afford? No, we can’t blame them; they were [i]victims[/i] (sarcasm), weren’t they?
Yet again, we see the failure of the [i]private and public partnership[/i], which really means more government control of private lives. And yet again, the taxpayers will bear the burden. How much will this add to our national debt – a debt that will burden future generations of Americans?
Whatever happened to the days of having to verify one’s income and show the ability to repay a loan before one is issued? I guess that was before the government – in its infinite wisdom (dripping with sarcasm) – decided it would be politically expedient to make home ownership available to those who really cannot afford it.
[b]Bottom line:[/b] The role of government IS NOT to solve personal problems, but rather to ensure a society in which people can find their own solutions and solve their own problems. The government CANNOT solve those problems; but it can do a masterful job at CREATING them. (I wonder if it’s all planned, or if they really are that stupid!) When will people realize that?
If we knew then (in early 1990s) what we know now, what would we (should we) have done differently?
(Edited to fix a few formatting things.)
