Freedom and liberty aren’t just words in America. They mean something. This is a country where you can start with virtually nothing, and achieve the dream of amazing financial success, whether it making hamburgers, or computers. But that freedom with a price — it is called individual responsibility. You see, the key to having a free country is that we have a truly limited government. Liberty means being able to take risks, and hopefully achieving tremendous success. But it also means that there is risk as well. Some people prefer to avoid risk, and that is their prerogative. But is a truthful statement that many of the self-made success stories in America occured because someone took a risk, and showed a willingness to potentially lose what they have to try to better their position in our society.
It is with some level of amazement that I read that President Bush has unleashed his Treasury Secretary to push for price controls on subprime mortgage rates. That makes no sense at all, at least not from the perspective of one who understands the free-market system and values freedom and liberty.
Home ownership in America is pretty much a universal aspiration. Some people are never able to realize that dream. Others are only able to do so after many, many years of saving. During the last decade especially, a lot of people made decisions to borrow money to realize their dream of homeownership, taking a risk. You see, their position financially meant that they either could not afford a home, or perhaps not as big a home as they would have liked. This being America, where you have the freedom to assume risk, millions of Americans decided to get loans that started a lower rates, and then kick up to higher rates later. One would assume that they hoped that the housing market would continue, as it traditionally has, to appreciate, and that they could rely on an equity-increase in their home to help them pay the higher mortgages when their rate increases kicked in. That said, I am sure that there are many different reasons why people decided to take that risk, and, frankly, that is their business, not ours.
But there are another group of risk takers out there. These people invest in the stock market. Now investing in the stock market can be riskier (such as putting a lot of money into a single company) or less so (investing in, say, a mutual fund that has stocks from all across the market). Guess what? These big finace firms that own all of these mortgage loans are publicly held. The profit estimates for these firms are based on anticipated income. Guess what happens when you "freeze" or "lock" artificially loan rates and reduce the RISK for borrowers? You guessed it, you sock it to the stock values of these financial firms, which in turn means that anyone who has taken the risk of investing in these firms now is paying the price for the freeze.
Of course, you can guess that what happens next will be the calls for a government "bail out" out of fear that a huge downturn in the stockmarket would lead to a nationwide recession, thus negatively impacting everyone. Of course, who then pays the bill? It is the taxpayer, which is so unfair. As taxpayers, we should not be assuming responsibility for the risk-taking of others. That is un-American.
The reality is that the housing market, much like the stock market, is cyclical in nature. The market is working through these issues already. Government intervention with price controls will make matters worse — much worse. And for those individuals who actually were defrauded by unscrupulous mortgage lenders, they have the right to sue to protect themselves.
What is likely to happen as a result of these price controls? The "sucking sound" you will hear will be the disappearing of financial resources for potential new home buyers in the market. Attaining credit for home loans will be substantially more difficult (ironically, the actions of those who assumed more risk will then adversly impact those who were more cautious).
These financial services companies that are the lenders of these loans have a fiduciary responsibility to their stockholders. That said, you can be sure that the last thing that these companies want are massive levels of foreclosure. They will be working very hard with every borrower to figure out if there is a way to, dare we say it, maximize their profits (that is why companies exist, to make money for their stockholders).
President Bush knows better. He understands economics, and he believes in the free market system. In fact, he himself has made quite a personal fortune through his own ability to take risks. Bush should be collaring his Treasury Secretary, Hank Paulson, and letting the market resolve this issue. The role of the government is not to assume risk, nor to absolve adults from the consequences of their own actions. Mr. President, stand up for America!
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