"Our Country!
In her intercourse with foreign nations may she always be in the right;
but right or wrong, our country!"

    --Commodore Stephen Decatur

Tuesday, October 12, 2010

"Prolong the Recovery"

The Washington Post reported on Saturday that, faced with a pre-election foreclosure crisis, the Obama Administration is considering a nationwide moratorium on foreclosures. You have to admire their chutzpah: rather than facing up to economic realities, the President and his advisors believe they can simply command the economy to improve. If only it were so easy! Even the Washington Post admits that the plan will likely backfire, in a roundabout way:

With foreclosed properties comprising one in every four homes sold in the United States, the spreading moratorium could disrupt real estate deals in progress, slow down the process of clearing the backlog of troubled home loans and prolong the economic recovery, analysts said.
Prolong the economic recovery indeed! When did the recovery begin? The unemployment rate has remained nearly constant over the past year at between 9-10% despite constant gaming of the system with over-reporting of census and election workers. The real unemployment rate is much higher if you consider that the private sector has continued to shed jobs for more than two years straight.  Worse still, just when it seems things couldn’t get any worse, the suggestion of a foreclosure moratorium comes as yet another assault on the markets.

Part of the reason why there has not been a robust and broad-based recovery is that investors are terrified of just this sort of government involvement. The administration’s proposal would force banks to write off massive losses with no recourse to obtain payment from borrowers who bought homes without ever realistically having the ability to pay. The plan is somewhat reminiscent of a scene from Atlas Shrugged, summarized below by SparkNotes:

The Fair Share Law dictates that Rearden must supply metal to all who ask, but there is no way to meet all the orders. Men with influence manage to acquire much more than their “fair share,” while legitimate orders go unfilled...Rearden chooses to ignore an order from the State Science Institute for something called Project X. A week later, a man from the Institute comes to see Rearden...Rearden tells the representative to bring in trucks and steal as much metal as the Institute needs, but he will not help Washington pretend that he is a willing seller...
Meanwhile, in another article published today, the Washington Post profiles Barney Frank, the man at the controls when Fannie and Freddie melted down, which in turn lead to the largest destruction of wealth in the history of the world. Just as with the proposed foreclosure freeze, Democrats gambled on unsustainable short-term economic manipulation to appease their constituents, but ultimately brought about the global financial crisis. The Post is slightly more charitable though:

For all his efforts, Frank readily acknowledges that there are more people needing decent housing than there were when he started in Congress. And with millions of others losing their homes to foreclosure, Frank asks to be judged by how much worse things would have been without him.
It’s hard to expect very much of the Washington Post these days, but this is beyond incredible. Not only has Frank failed entirely in his mission to give more people a roof over their heads, but we’re supposed to believe that had he and fellow Democrats not rigged the system to create trillions of dollars in bad loans that the economy would be even worse today?

Instead of trying to force economic growth through government control, Democrats need to accept that the only way to create long-term sustainable economic growth is by vigorously protecting personal property rights and by preserving the rule of law. By thumbing the scales in favor of special interests, the Democrats have tipped the markets into chaos and upheaval. The last thing we need is for President Obama and Barney Frank to create more regulations that will “prolong” (i.e., delay) a lasting economic recovery.

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