Tuesday, December 18, 2007

Fed Shrugged

This article by the NY Times illustrates just how dependant people have become on the actions of government.

The whole sub-prime housing crunch in the US was created by people trying to get something for nothing, or practically nothing.

Consumers were encouraged to buy, buy, buy and told by society that it was completely unacceptable for a married couple to live in a home with less than 4 bedrooms and 3 ½ baths.

Greed, status, ego and hubris led individuals and business’ alike down the garden path of financial irresponsibility and willful ignorance.

The market has since corrected itself, as it should but now the howls of despair have begun, and the blame is being focused, not on the people who played the game but on government for not telling them that it could all turn out badly.

Yup. The same people and businesses that would have cried bloody blue murder and complained that the free market was in jeopardy if the government had stepped in to curb their excesses in 2006 are pointing the accusatory finger at government today and demanding to know why their financial security had not been protected (legislated{controlled}), demanding federal programs (bureaucracy{inefficiency}) to save them now that it is too late.

The proposals the fed has offered up are laughable, not because they are in and of themselves ridiculous in any way, but merely because they are the measures a rational, honest and prudent person or business would have taken in the first place. Imagine being a bank and NOT confirming your customers “income and ability to repay the loan” or worse yet being individually so myopic as to not be able to think about the future and your personal liability should the whole market go pear shaped.

Mr. Greenspan should not be wasting his time defending “the assertion that he could have prevented the mortgage bust.” But should instead call a spade a spade as he is want to do, and assert that it is not the business of the fed to ensure that consumers are fiscally responsible or to exercise due diligence for them in their dealings with business.

It disturbs me that the language being tossed about includes “fraud”. Is it fraudulent for a business to offer sub-prime mortgages? Is it the responsibility of banks and credit companies to ensure that if the bubble bursts that the individual who asks for their money will still be able to pay? Is business to be held accountable for the poor financial choices of the consumer?

Yes, it may very well be in the best long range interest of a bank or credit company to ensure that their customer is a good risk (from their point of view) and that they are aware of the risks, but to assign blame, to claim fraud because of free market corrections and the piss poor planning of the individuals is nonsensical.

The level of patronization contained in this article spills out in the paragraph that reads;
“Why are the most risky loan products sold to the least sophisticated
borrowers?” Mr. Gramlich asked in a speech he prepared last August for the Fed’s
symposium in Jackson Hole, Wyo. “The question answers itself — the least
sophisticated borrowers are probably duped into taking these products.”

So now the discrimination prejudice begins. People with lower incomes are not necessarily unable to understand contracts, nor are those in a higher income bracket necessarily capable of doing so.

Aside from the implication of the articles title, which is both a back handed and completely off the mark attempt to imply that a moral failing of objectivist theory (selfishness) created the problem, and an indictment of the Federal Government for not "doing something", this whole sub-prime “crisis” is a cautionary tale.

It is the same one that your mother warned you about as you first began dealing with money. It is encapsulated in platitudes and is recognizable to even the dimmest of wits.

A fool and his money…

If it seems to be too good to be true...

Consumer beware…

1 comment:

Mitch said...

Good post. It seems that the traditional liberal viewpoint is coming through in the narrative.

First, in the 90s "restrictive lending practices hurt poor and minorities". Now it is "Easy credit through subprime mortgages duped poor and minorities".

It never ends for those who want the nanny state.