March 18, 2007
The Sub-Prime Blame GameBy Christopher Chantrill
Thank goodness the Plame Game is over and Scooter Libby safely convicted for-what exactly was it? Now we can concentrate on the next Big Thing: the meltdown in the sub-prime mortgage market. As a broker acquaintance commented: "Anyone could have seen that was coming."
After "Bush Lied" it's "liar loans."
Companies which specialize in making loans to sub-prime customers are falling right and left. Marginal borrowers are having trouble paying the interest on their variable interest rate loans. Poster child for the industry's troubles New Century Financial, has been cut off by its lenders, de-listed from the New York Stock Exchange, and barely surviving. Other companies are having so much trouble and downsizing that the market for office space faces a sudden glut in places like Orange County, CA, where the industry is concentrated.
The only thing that is uncertain is just how President Bush is to blame for the whole thing. But never fear: the central skill of practical politics is to take the latest systemic government failure that "anyone could have seen was coming" and confidently blame it on the president.
In the current mortgage meltdown the president is clearly responsible for permitting the development of a "liar loan" market, the "stated income" mortgage loans in which the borrower merely states his/her income in a loan application without having to back it up with documentation.
The very idea! It violates the first principle of the welfare state that people are helpless and not to be trusted in the normal transactions of adult life. Mr. President, how could you allow innocent working families to lie themselves into foreclosure and bankruptcy?
It's a pity that Mike Wallace is no longer the lion of the ambush interview that he was in his prime. "You mean to say," he would have bellowed to a humble loan officer, "You mean to say that no check is made of an applicant's income?"
There ought to be a law.
There ought to be a law about the ridiculous level of subsidy for home ownership: the mortgage interest deduction, the federally insured home loans, the government-sponsored enterprises like Fannie Mae and Freddie Mac that are issuing oceans of mortgage debt. All these government programs conspire to raise the price of housing above that which would obtain in an unhampered market for housing and mortgage loans. When events conspire to create a perfect storm, combining subsidy, environmentalist "smart growth" restrictions, and record low interest rates needed to stave off deflation after the NASDAQ crash, well, you could have seen it coming: a mega-boom followed by a bust.
There ought to be a law.
But let us look at the big picture. Let us look at the big things that we spend money on. There is housing, health care, education. Those are the big three. Then there is transportation, food, clothing, housewares, recreation, savings. Then there is taxes.
Notice anything? The big three--housing, health care, and education--are so important that the governing class feels a compelling need to supervise them in detail.
Notice also that housing, health care and education are areas in which women instinctively focus their interest. Is that why the governing class is so interested in supervision? The little lady just can't be trusted to act responsibly?) The result is that the big three are completely screwed up. Health care is screwed up because its third-party payment scheme encourages people to treat health care as a free resource. Education is screwed up because it is a government monopoly and people are powerless to seek out an education adapted to the individual needs of their children. They must take what they are given. Unable to exercise choice in health and education directly people--that is to say, women--focus all their energies and resources on housing, bidding up the price of housing in areas with good schools. Government adds fuel to the fire by subsidizing everyone's housing dollar.
The result, as Mark Steyn has written, is that average westerners have become adult teenagers, provided with pocket money to buy fancy houses, cars, and home electronics, but powerless to make the important decisions in their lives.
One fine day we are going to stumble upon the radical notion that people ought to pay for the necessaries of life with their own money and with the minimum of privilege, subsidy and government control.
Progressive people will declare it to be a question of human rights.
Practical people will declare it to be a matter of common sense.
Readers of The New York Times will confidently pronounce at fashionable dinner parties that the policy mix of subsidy in housing, third-party payment in health care, and compulsion in education that obtained at the turn of the twenty-first century was a disaster waiting to happen.
Anyone could have seen it coming and it was all Bush's fault.
Meanwhile you can expect that your average presidential candidate and your average White House reporter will suddenly become experts in the "liar loan" department.