by Steve Fair
George W. Bush, Republicans and even Ronald Reagan are being blamed for the current bailout situation. But Congressman Barney Frank, D-Mass. And Senator Chris Dodd, D, Conn. Chair the respective committees responsible for the oversight and regulation of the industry and must bear some of the responsibility.
The industries that are in trouble- banking and home mortgage companies- are businesses that government has always highly regulated. Some criticize the free market system, but make no mistake these businesses did not operate in a pure free market. Twenty years ago, if you got a mortgage, you had the option of meeting with your local banker, completing a loan application and then having the local bank loan you the money for your house. For all practical purposes, local banks got out of the mortgage market when government-guaranteed mortgage lenders entered the business, pooling trillions of dollars of mortgages based on a broad geographical base of loans from around the country. This was done in the name of asset diversification. It also cut out local monitoring and removed that personal touch from banking that defined the industry.
If you want a mortgage now, a statistician assesses the risk. Nobody is hired locally to monitor the loans and collect monthly payments. While the process sounds efficient, the reason we are in this mess is because the standards to qualify for a mortgage loan were lowered to a level that virtually anyone qualified. Mortgages became like used tires- someone always had a better deal.
If people continue to walk away from their homes and if new lenders are not found to fund replacement owners, America will experience hundreds of billions of dollars of property equity decline by the end of 2009. Local banks will likely be back in the mortgage business. There will be empty houses detorating and at some point, squatters and the weather will take over what were once nice homes. Ben Bernanke, the head of the Federal Reserve, expects “local” banks to step in and help solve the crisis. That solution will likely be houses for sale at “garage sale” prices with the difference in market value and sale price supplemented by taxpayer dollars.
Bailing out private industry- regulated or not- is not the function of government. And not all lawmakers are for throwing a lift vest to every sinking company.
Fiscal issues should be discussed in this presidential race. The candidates have two very different records on fiscal matters. Senator Obama believes government is the solution but as proven by this crisis, more government regulation is not the answer. McCain is a true fiscal conservative. He wants to make the Bush tax cuts permanent, eliminate earmark spending and balance the federal budget. He has pledged to veto any bill with an earmark in it and “make the person responsible famous.” If it were your money- and it is- which plan makes the most sense?