Don’t say we didn’t warn you

Dr. Paul Hsieh says the economic collapse of 2008 contains a lesson…and a warning:

In the 1990s, politicians wanted to make home ownership as universal as possible. They used laws such as the Community Reinvestment Act to force banks to make unsustainable loans to millions of people. They also expanded quasi-government agencies such as Fannie Mae and Freddie Mac to guarantee these loans.

This scheme could last only a few years. In 2008, the housing bubble finally burst and economic reality caught up with the politicians. American taxpayers were stuck with the tab for these “toxic” mortgages. The result was the Wall Street Bailout of 2008 and the worst economic crisis since the Great Depression.

In 2008, politicians want to guarantee “universal health care” with new laws and new government programs. President-elect Barack Obama wants to require health insurers to sell policies whether or not those policies are economically sustainable (for instance by requiring them to issue policies regardless of pre-existing conditions). He has also proposed creating a massive new “National Health Insurance Exchange” to help ensure “universal coverage.”

But no politician can evade the laws of economic reality.

Instead of universal health care, we need free market reforms that reduce costs, reward individual responsiblity, and respect individual rights. Some examples include eliminating mandatory insurance benefits, repealing laws that forbid purchasing health insurance across state lines, and allowing individuals to use Health Savings Accounts for routine expenses and to purchase low cost, catastrophic-only insurance for major expenses. Such reforms could lower costs up to 50 percent, making health insurance available to millions who cannot currently afford it.

We can’t go back in time and avoid the Wall Street Bailout of 2008. But we can still make the right decision with respect to health care. We must reject calls for “universal health care” or else we’ll be faced with a massive “Health Care Bailout of 2018.”

Learning from the mistakes of the past seems to be astonishingly difficult for our political classes.  The “lessons learned” from the recent financial meltdown are not that government regulation of and intrusion into business transactions like loaning money for mortgages can result in disaster.  In fact, banks, corporations, and other institutions are finding themselves on the receiving end of taxpayer largess courtesy of many of the same politicians who supported the policies that got us into our current economic catastrophe.  As a result, I doubt there are too many politicians out there who are worried that if their dubious health care financing palliatives fail then they will be called to account for their failure.  Have politicians who supported the Great Society programs of the 1960s been called to testify before a congressional committee on their role in the the financial insolvency of Medicare?  What about that popular pyramid scheme called Social Security?  As one commentator put it:

A lot of people have been comparing the Ponzi scheme allegedly run by [indicted Wall Street investor Bernie] Madoff to the Ponzi scheme run by the U.S. government, also known as Social Security.

That’s entirely unfair.

To Madoff.

From what I can gather, Madoff at least made an attempt to invest the money he got from early investors to give them the returns he promised. Those investments failed to bring in enough money and the scheme was doomed to fail sooner or later. But if Madoff had been a more brilliant investor, it might have worked.

The federal government, on the other hand, never tried to make the Social Security system work. The feds didn’t invest the money in the market. They took the money that we gave them and lent it to themselves, promising themselves interest. To be paid by themselves.

The trouble is that American politicians are not only not held accountable when their socio-economic engineering schemes derail, but often shamelessly (and, mores the pity, sincerely) stand beside the smoldering policy train wreck of their own creation and loudly proclaim that the required remedy is still more government control.

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One Response to “Don’t say we didn’t warn you”

  1. Prof. Samuel D. Bornstein Says:

    RE: The Housing Market, Foreclosures, and Job Loss:

    On December 14, 2008, CBS’s 60 Minutes had a segment on the 2nd Wave of Foreclosures. They indicated that experts were expecting another wave of mortgage defaults on ALT-A and Option ARMs mortgages which will dwarf the Subprime Mortgage Crisis. CBS missed a very important point.

    Many fail to realize that there are millions of self-employed smaller businesses, who employ from 1-10 employees, that are holding the mortgages that are going to reset in 2009 through 2012. These borrowers are Prime and Near-Prime borrowers who hold ALT-A, Option ARMs, Interest-Only mortgages. There are $1 Trillion ALT-As, and $500-600 Billion Option ARMs.

    So, here we have a major problem… Not only will these small business owners lose their homes, but there will be the resulting JOB LOSSES on their business failure. Note, although President-Elect Obama is stressing the need to create 3 million new jobs, we must understand that “JOB RETENTION IS AS IMPORTANT AS JOB CREATION”.

    A survey conducted by the National Association for the Self-Employed (NASE) disclosed these disturbing facts. The NASE survey is at http://www.nase.org . See the NASE News for the Survey on Toxic Mortgages.

    According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012.

    The solution lies in the hands of Congress as they meet in January to structure an economic stimulus package. Congress should take note of this survey and be “proactive” in addressing the situation, rather than “reactive” as the case has been in the Subprime Mortgage Crisis.

    We can’t afford another shock to our economic system at this time. This 2nd Wave of Foreclosures which will be caused by the ALT-A and Option ARMs will not only result in Foreclosures, but also Job Loss.

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