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As Long as We Remember...

December 9, 2008

Who Thought This Up?

Farrell Keough

Why is it that It’s a Wonderful Life seems to continuously play from Thanksgiving until Christmas Day? Is this some evil plot by Big TV to drive us crazy during this season? Or is it some other ghastly plot of excess?


Speaking of excess, have you considered the current economic proposals? Treasury Secretary Henry Paulson is now considering reinvigorating the housing market by throwing money at it. Since this has worked so well with our government-funded school systems, why not with the Free Market?


Conservative values look to government last when trying to solve problems, especially those involving capitalism. If government interference is necessary, least is generally best.


Unfortunately, very few conservatives are involved in our government right now. The new era of consistent government involvement seems to be the course of the future. In short, when there is an issue, look to government first for the solution.


We have given Treasury Secretary Paulson an obscene amount of money to spend as he sees fit. This prospect alone is terrifying – no single person should have that much power without constraint. The plans for this money have vacillated almost weekly. Various ideas have arisen, been voiced, garnered public outcry, and then something new came along.


The current plan is to throw the remaining $350 billion at Fannie Mae and Freddy Mac to invigorate the housing market. Two things are of note about this proposal: 1.) this money would be funneled through those quango-government agencies that are at the center of causing this crisis; and 2.) the actual amount being proposed may well be much greater than $350 billion.


Let’s explore some of the issues behind this plan. Who are we told is the major cause of this housing crisis? Predatory lenders. So, where is the safeguard to prevent predatory lending in this proposal? ’Tain’t there!


Second, who are the victims of this housing crisis? Those poor people who did not understand that sooner or later you would have to actually pay for the largest investment most people ever purchase – their home. So, where is the insurance that those who are facing foreclosure will have the opportunity to refinance and stay in their home? ’Tain’t there!


But, enough with the negativity. This proposal is supposed to stimulate the housing market and the overall economy. With the government underwriting these new loans, more houses can be purchased and people’s disposable income should increase. Well, sort of.


Even with an incredible 4.5% fixed on a 30 year mortgage, people buying a new or first-time home generally do not have a huge quantity of disposable income. And, of course, with such a sweet deal, they may be able to buy more house. But, of course, that brings us back to that pesky predatory lending practice.


As to whether this will be available to refinance existing mortgages, that is still up in the air. As with so many of Secretary Paulson’s proposals, nothing firm has been defined. But, if this were to be used for the vast majority of homeowners to refinance, then we would have more income at the end of the month.


You see, most homeowners pay their bills on time and are not looking at foreclosure. Hence, if they were able to refinance from the average 5.75% to 4.5%, it stands to reason that they would have more disposable income to spend wildly.


Problem with that scenario is what do most responsible people do during difficult times? They save their money or invest it – I hear soup is up in the stock market. Putting money in the bank will certainly make them want to loosen their grip and begin loaning money again, right? But then, who gets the money loaned to them? Certainly not those involved in the housing market. That portion of the public with good credit is not out buying new homes, but rather refinancing their existing homes and saving the money.


And, the originator of the loan is no longer making the return on the loan. Hence, their portfolio now consists of the poor loans that did not pass the standard for this new influx of money. So, what are we left with? More in savings and fewer low-risk loans on the books. If you ran the bank, would you be out making a lot of risky or even semi-risky loans?


So, as a conservative, do you think this new and improved idea for the remaining bailout money is a winner? Using government money, (or more precisely, our money) to bailout or invigorate certain sectors in an attempt to stimulate the entire economy?


And, by the way, It’s a Wonderful Life was no longer copyrighted due to a clerical error back in 1974. Hence, stations which rerun this movie do not have to pay a royalty. In other words, it’s free. Guess that makes for good business, huh?


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