Nobody home.

There’s a great fix for all of our economic woes. It’s called the free market. People who make bad choices in a free market are penalized. People who make good choices are rewarded. If we allow the free market to take precedence with as little government interference as possible, and every player knows this up front, then a) we’d be a whole lot less likely to end up in long term economic difficulty as a society in the first place; and b) we’d get out of any such difficulty a whole lot quicker.

N.B.—we do not and have not lived in a free market economy for quite some time now. We’re a free-market BASED economy, but the government is ALL OVER our economy. And under it. Between it. On top of. Etc.

The free market says that “thou shalt borrow more than you can afford to repay”. It also says “thou shalt not lend money to those not likely to pay it back”. And this is common sense, right? Common sense is the governor of the free market. If you borrow a whole bunch of money and then lose your job, you’re up the creek. This acts as a limiter on the amount of money that a responsible person should borrow. Don’t borrow more than you can afford to repay even if you lose your job for X amount of months. Same for lenders…common sense. Don’t lend money to someone who isn’t likely to repay it. Again, common sense acting as that “invisible hand” that keeps the market in check. We are left with a system where people borrow reasonable amounts and lenders lend to reasonable people and the world marches on. We don’t have 100% home ownership, but who says that’s a bad thing? Especially if it means to get to 100% we have to force reasonable people to act irrationally?

The government, that’s who! When they get between reasonable people acting rationally, then all hell will break loose….as we’ve seen by our current economic demise. The housing debacle was caused by government. Plain and simple. Government is responsible for banks lending to people who aren’t likely to repay. Why else would banks lend to these people if not forced? As above, common sense dictates that these “sub prime” lenders are too risky. Banks would avoid them (as they did for a long time) if they could. But after the government INCENTIVIZED this type of lending (through Fannie and Freddie), it of course became the thing to do. Why worry about lending to people who won’t repay when the government is behind you backing up all the loans? Hell, I’d lend $20k to some kid out of highschool with no job to put a down payment on his house if the government guaranteed it too, wouldn’t you?

Now Obama’s at it again….marching government in to “solve” a problem that it created to begin with. Have you heard about his new plan? Check it out:

Obama proposes to shore up Fannie and Freddie, and to encourage mortgage companies to renegotiate terms for four to five million homeowners by offering lenders a bounty of up to $1,000 for each mortgage modified, along with monthly payments running into thousands of dollars over several years, for as long as borrowers remain current on their obligations. Under current standards, mortgage lenders cannot refinance a loan if the outstanding debt exceeds 80 percent of the house’s value. President Obama proposes to undo this prudent standard and allow refinancing for up to 105 percent of the house’s value, so that “upside down” borrowers will be eligible to participate. This will produce mortgage-backed securities based on debt that exceeds the value of the underlying assets and is a recipe for further instability.

So, cui bono? Put simply, this program is designed to benefit Fannie and Freddie shareholders, not the great majority of Americans struggling with their mortgages. The only loans that can be restructured are those held in Fannie/Freddie portfolios or securitized by the twins. Just in time to benefit from a refinancing boom, Fannie and Freddie plan to raise their fees to as high as 3.5 percent on April 1. (Note that date, taxpayers, and ask yourselves who is being played for the fool.) And only a tiny slice of homeowners will be eligible — those who are in relatively weak positions (house payments exceed 31 percent of gross income) but not too weak (house payments do not exceed 38 percent of gross income) and who are, despite their mortgage difficulties, still creditworthy enough to pass bank underwriting standards. Fannie and Freddie get new capital, new income, and better loans in their portfolios. Most homeowners get nothing, and taxpayers get the bill. Fannie and Freddie, which ought to be disbanded, will survive to continue distorting both markets and politics.

So if you’re a creditworthy borrower with mortgage payments between 31% and 38% of gross income, why don’t you just refinance at one of these new low rates that are so popular these days? Because that isn’t FREE. And because that wouldn’t permit Obama to crow about SAVING US FROM OURSELVES in 2012.

We’re being played for fools, all of us. And it’s not news. Obama promised to do things just like this housing plan and the stimulus in the months leading up to the election. It’s what “spreading the wealth around” was all about. It’s Socialism and it stinks. It stunk when he proposed it and it stinks even more now. If the government knew anythign about the economy, why did the Depression last for 12 years?

Look at the stock market. What do you think Wall Street thinks of the prospects for long term American economic growth? Is it a coincidence that the market has lost like 3,000 points in the 3 months since the election?