For some time I have pondered on why so many Washington officials fear a true free market society. Each year that passes leaves us with more regulation and a loss of freedom in one way or another. Don’t get me wrong, some regulation and policing is necessary for a peaceful society, but where do we draw the line on what constitutes regulation and what constitutes a violation of freedoms? The debate on that issue is sure to outlive us all, but here is my perspective on the issue- Citizens and legal businesses should be free to transact business as they see fit provided neither party commits fraud, and provided both parties are transparent in their representation. If those involved in the transaction are happy, then that makes for a fully legal and legitimate transaction so long as it does not violate national security or other peoples freedoms.
Of course there are many variables that may require further attention and possible rules- the simple formula outlined above however would solve a great deal of our countries problems if it was adhered to. Lets look at some examples. The year 2008 was disastrous to the mortgage and housing industries. Many banks failed, leaving investors with losses, and many homeowners lost their homes. Unfortunately 2008 was not the end of that saga, the foreclosures have continued, and many banks and lenders are still on shaky ground. Despite massive regulation, the vast majority of mortgage loan products are gone- many of them who provided the American dream to large numbers of Americans. It seems that the sole survivors in mortgage lending are government sponsored and/or backed loans. Few other mortgage types are available today- not because the market won’t allow it, but because government won’t. Regulation, lawsuits and legislation has forced the industry down a road that will be hard to recover from. So what would have happened had government stayed out of the way when the crisis began?
To start with, had government never been involved in pressuring Wall Street investment banks, Fannie and Freddie into making bad loans, much of the crisis would have been avoided. Putting that aside, lets look at the true cost of what government interaction has had on our housing industry. The homeowners who took out mortgages they could not afford would have lost their homes 3-4 years ago. There would have been no modifications unless the bank chose to do so of its own free will, and foreclosures would have skyrocketed for a year, maybe two. (Did you know the vast majority of modified mortgages went right back into foreclosure in less than a year after the modification?) Many banks would have failed and other mortgage lenders would be closed. However, in all likelihood the housing market would have reset By 2010 – home values would have bottomed out and the banks would no longer have massive foreclosures to deal with. Those who lost their homes would be valued renters, and new customers for new mortgage products that would be available without government regulation. Billions of dollars would have been saved by the banks in legal defense, settlement agreements and ongoing costs due to prolonged foreclosures that have likely benefited only a few. The vast majority of these expenses were brought on by lawsuits and regulations from government. Billions more would have been saved in taxpayer money which was used to bail out the same banks that were being sued. And again these suits have come from that same government that took our tax dollars and gave it to these banks just a few years earlier. Most if not all chose to put that bailout money was to used in other areas than mortgage lending- the banks are hoarding the money due to uncertainty of what government will do. Why would they continue to invest funds into housing when they knew foreclosure remedies that secure their loans would be attacked at every turn and government intervention would be their most expensive cost?
Had government intervention been kept at bay these same banks would have taking the billions they saved in legal fees and payouts and would have started to reinvest that money by lending to businesses and homeowners, likely under revised lending guidelines. More loans would become available and the economy would have started a healthy recovery a few years ago. Unemployment would have been reduced because businesses could continue to flourish, build and grow. Fewer homeowners today would have jobs and would not be left in financial dire. The foreclosure crisis would likely have been over for some time.
Instead Washington has by and large declared the free market an enemy to the country, and seized control over our financial lives. They have threatened banks and lending instructions that if they give a loan that Washington does not approve of that both civil and criminal penalties will aggressively be pursued by officials eager to buy votes. They have effectively blamed everyone else for the crisis- the banks, the loan officers, Wall Street- well anyone besides themselves or the homeowners who may be voting for them later. The new legislation we have now was pounded through by some of the worst offenders in Washington- under the guise of consumer protection. The Frank Dodd act has had a devastating effect on our economy and freedoms, yet it bears the names of legislators that contributed to the financial crisis more heavily than most.
You and I can no longer go to a bank, credit union or private party and take out a loan, even if both us and the lending party both agree its an excellent idea. Uncle Sam has to approve that transaction first because we cannot be trusted to make our own decisions. So I have to ask the question, why are we as a society allowing Washington to take our tax dollars, use it to take away our freedoms and our financial choice, then re distribute that money to those whom they think deserves the money? Why do we allow them to do so as the wolf in sheep’s clothing- telling us along the way that we need them to protect us from ourselves? I for one prefer the freedom to use my money, my home and my assets as I see fit so long as I use it legally, and I will happily accept the consequence that comes from making a financial mistake. Yes, my home may be lost, or retirement account depleted if I invest it poorly, but shouldn’t it by my choice?