Gaming The System
Americans often talk fondly of our Free Enterprise system and its virtues. America certainly would not have grown so rapidly to such a height as a world power were it not for the opportunity it offers. Opportunity for those who are WILLING TO WORK to pull themselves up and become successful in our capitalistic society. That motivation fueled our country’s growth… citizens voluntarily applied themselves as never before and the country, as a whole, benefited (as did those individuals who worked so hard). America EARNED the reputation for having the most productive workforce.
The free enterprise system may not be perfect, but it IS the best that has ever been devised. All things considered, it is the only one that can possibly last over the long term… socialism,communism, and a host of other -ism’s are inherently flawed: they might look good on paper, their theory might be fine, but they simply cannot work in the real world, where the vast majority of people will put their own priorities in front of the priorities of the government or their neighbors or anyone/anything else (and understandably so).
Our system puts competing interests into battle for the pocketbooks of us all. Companies want to sell their goods and services… and people want to buy them. People are paid for the work they do and choose how they want to spend their dollars… or choose to save those dollars, accumulate them, defer instant gratification for a larger purchase (and greater satisfaction) later. Such as saving for a down payment to buy a home.
The problem comes when government interferes with the system.
To be sure, ours is not an absolute free enterprise system… government controls it in many, many ways. Like many things, SOME amount of government intervention may be called for… might even be beneficial… but it should be kept to a minimum. Almost always, even “good” government involvement is clumsy and could probably be accomplished in a far better way. But the free enterprise system is inherently strong enough to withstand a certain amount of such interference.
When government interference crosses over that invisible line, the system no longer works as it should. One example would be high taxes. If profits are taxed at a very high rate, the motivation for a company or individual to work harder and earn more is diminished… so “growth” is slowed. Why work more or take risks if too much of a POSSIBLE return will be taken away from you?
When our Congress began to manipulate the housing market, it set into motion a very bad sequence of events. Here’s what happened:
- Pressure was applied to banks to give loans to people with less ability to repay them.
- Organizations were created to buy those loans (FNMA and FHLMC).
- Those organizations were authorized to guarantee those loans using the backing of the U.S. government.
The fatal flaw in all this was the first step: loaning money that had a greater risk of it not being repaid. Rather than the market determining how high the risk was to loan money to any given borrower based on credit history and their ability to repay (income verification), the risk was MANDATED by government. Essentially, government said it was not only OK to make such loans, they aggressively ENCOURAGED it! And, to mitigate the risk to the lender, the government said it would back the loan.
In moving the risk from the bank to the government, the risk was essentially moved to you and me… all taxpayers. NOTE: the risk was not transferred to every citizen… it was transferred to tax PAYERS… not every citizen pays taxes (in fact, about half pay no federal income tax at all).
So, the government was gaming the system. And, when that happens, businesses involved in industries related to where such gaming is done simply start playing the game. All of this could be easily anticipated. If loans are extended to too many people who cannot repay, the house of cards will eventually tumble. The only amazing thing to me is how long it took for it to happen.
Congress caused this problem (starting with the Community Reinvestment Act of 1977) and should be held accountable. THEY set up a situation that manipulated the free market system and resulted in one of the worst financial disasters in recent history. Every member of Congress who pushed for government to interfere more and more with the natural forces of the market, forgetting that you can’t promise people something for nothing, should be voted out of office because they are guilty of at least one of the following:
- Economically ignorant, so have no business running our country.
- Gained financial support from organizations they were supposed to be overseeing, so could not see or chose to ignore the obvious conflict of interest.
- Gained political support from organizations advocating loans to sub-prime borrowers, so placed their political power in front of “good business”.
- Were too lazy to try to correct a situation they saw as flawed, in which case we need representatives willing to battle harder to defend OUR interests.
And where is the Congressional hearing?
