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Not Democrat, not Republican - Constitutional Conservative

Abuse Coming and Going

Most of us have sympathetic feelings for our fellow citizens. I have worked hard, life hasn’t always been easy, and am grateful for what I have, so I try to help others in need. I choose to do this almost exclusively through my church since I have more trust that the money is going where it is needed and can see the good results, in many cases.

I have also learned NOT to support certain organizations since most of the money they receive goes toward administration, marketing, overhead, and very little actually reaches the people they purport to help. These groups are really in business to help themselves, not to help others..

And I have little confidence the government can do a better job when it comes to “charity”. I’ll be generous and say that the hearts of the politicians and bureaucrats MAY be pure in their desire to help others (although there sure seems to be a lot of self-interest involved!), government programs are probably as ineffective as the deceptive groups I mention above… but worse. Unlike the unscrupulous “charitable” organizations where I have the choice of supporting or not, government programs MAKE ME PAY… even when I know they can’t be as effective with MY money as I can!

The recent financial crisis was caused primarily by just such a program.

Congress, in all it’s wisdom, decided to interfere in sound business practices and manipulate lenders into providing home mortgage loans to people who really couldn’t qualify for them. Common sense tells you that there was going to be a problem somewhere down the road… it doesn’t take a genius to predict that many of those loans would not be repaid. Under the guise of “helping people afford houses”, Congress established the foundation for a “house of cards”. I always worry about unintended consequences when it comes to government programs.

Undoubtedly, there were some people who got an “easy loan” (no income verification, no proof of employment, no down payment) but made sure they made their payments. I applaud those folks… I believe they were the very few who represent the bright side of this picture.

I am confident, however, that the “word got out” to a huge number of people that they could get a home loan just by asking for one… and they did. While there may have been some who were coerced into borrowing more than they should… or into borrowing at all… I would bet that a LOT of these people KNEW they couldn’t repay the loans and decided to take advantage of the opportunity for as long as it lasted.

Had the situation stopped there, it still would have led to problems but on a relatively small scale. Banks and mortgage companies have a limited amount of money to make home loans and that supply would have been depleted at some point. Those companies would have been left holding a certain number of sub-prime loans and, when they started to default, those companies would have suffered. Pain that would have been a direct result of coercion by Congress in the first place, I might add.

But government has a hard time knowing when to stop. Congress added fuel to the fire through its control over two “government sponsored entities” called Fannie Mae and Freddie Mac (FNMA, FHLMC). These organizations were allowed to BUY sub-prime loans from banks and mortgages companies as well as GUARANTEE THOSE LOANS. This meant the originating banks and mortgage companies sold their loans and then had money to MAKE MORE (bad) LOANS! This was the basis for a vicious cycle… the house of cards started growing bigger.

The banks and mortgage companies liked this arrangement. Instead of holding on to a batch of questionable loans, they could sell them and take a little profit each time. Had Congress pressured them to make the suspect loans but not facilitated the transfer of that big potential liability, the banks and mortgage companies would have eventually balked. They would have started to feel the effects of slow/no payments coming in on the loans and that reality would have made them scream publicly at Congress. Instead, Congress enabled their liability to be passed along to others… so why should they complain?

But the real fuel to this race to disaster was provided by government guarantees of these loans. It’s one thing to guarantee loans made to qualified buyers… it provides capital for more loans and everyone benefits. It’s another thing entirely to guarantee risky loans… but that’s what happened. By the sheer stroke of a pen, loans made to people who really didn’t qualify for them magically became the same as loans to people who did. Reality was ignored.

Wall Street figured out that it could bundle a lot of sub-prime loans into a package and sell shares to investors. These “mortgage backed securities” (read: government backed securities) were attractive to investors since they could earn a higher promised rate of return WITH the guarantee of our government behind their investment. What a wonderful concept!

Investors scrambled to buy these great securities!! So Wall Street pressured banks and mortgage companies to supply more. And… surprise, surprise… more unqualified borrowers were found to buy houses!

Given the big demand, abuse became rampant up and down the supply chain. The house of cards became a teetering skyscraper!

This went on for a few years until reality caught up with the flaw in the system… payments weren’t being made as expected… and the repercussions cascaded through the complex maze of loans and securities. It’s amazing this “scheme” was sustained for as long as it was.

Had a private company been behind the whole scheme, we would already have had Congressional investigations and the people responsible would be in jail. But CONGRESS was behind all this… and there are no investigations… and nobody in Congress who pushed this scheme are in jail. Yet.

Inevitably, the house of cards came tumbling down. It should have been a surprise to nobody. It was totally predictable. It was a situation CREATED and SUSTAINED by Congress.

The resulting financial crisis has had a devastating effect on many who were not event participants, much less beneficiaries, in the activities that caused it. WE are being made to suffer for the actions of others.

In typical political fashion, Congress has shirked all responsibility for the problem and brazenly puts itself forward as the source of the solution! I find this laughable.

But they are our elected “leaders”. Some leadership.

Rather than letting companies fail, Congress has provided MORE SUPPORTS… and now we see the consequences of that action.

SOME people who are now facing foreclosure are either looking for their own little bailouts OR taking advantage of yet another opportunity to “get something for nothing”. Taking a page from the President’s chief of staff (”You never want a serious crisis to go to waste“), some people see impending foreclosure as a last chance to grab the brass ring:

Seeing they are about to lose their houses, some homeowners are having “sales” despite agreeing to a standard clause in their mortgage to not “waste or destroy, damage or substantially change the property.” … getting whatever cash they can for ANYTHING in the house: “everything from the kitchen sink to countertops, cabinets, toilets, the hot water heater and the furnace“… and worse.

Loans backed by the government generally require a home to be in what is considered livable condition, so a foreclosed home will have to be brought back up to proper condition before it can be sold. This means taxpayers are not only backing the loan but may have to also pay for repair and replacement caused by further abuses of the system.

When you make a loan to someone who didn’t qualify… who didn’t have any money in the investment… who has nothing to lose if “extra damages” are incurred (and can actually get money by selling parts of the house!), it’s going to happen.

This just further accentuates the fact that good business practices (such as requiring a down payment) cannot be arbitrarily ignored without incurring ADDITIONAL RISK in the deal. Thanks for this one, too, Congress!

Our Constitution provides us EQUAL OPPORTUNITY… not equal outcome. So long as the same qualifying measures are used for all home loans regardless of who is applying, it is a fair system. ANY attempt to “legislate” the outcome (in this case, granting loans to people who don’t qualify) will lead to bad results. While they haven’t been as visible or climactic, how many other government activities are having the same kind of effect? How many other “ticking time bombs” have our elected “leaders” created? When will the other shoe drop on, say, social security?

Despite this, no lessons are being learned. Apparently, nationalized healthcare and mandated “green energy” are the next items on the agenda. How fraudulent will these turn out to be?

Government needs to get back to basics, follow the guidance of the Constitution, and keep out of activities that cause far more “bad” than they can ever hope to do “good”.

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