The Santelli phenomenon: a cry for justice
Rick Santelli’s much-publicized tirade against the Obama foreclosure bailout plan brought to the fore one point that cannot be hammered home enough: the injustice of this and other bailouts. This plan, like all of the government’s plans, past and present, to “do something” to prevent people from taking losses in the wake of the housing bust, is necessarily unjust to responsible Americans who must foot the bill. And, as it should be clear by now, far from these policies being economically necessary, this sacrifice of the responsible to the irresponsible is only causing our economic situation to get worse and worse.
Here’s what I think would be a just way to deal with today’s economic problems. As I wrote in November 2007:
While we may empathize with those suffering the pain of foreclosure or bankruptcy, we must recognize that any struggling borrower or lender who signed a clear, non-fraudulent contract, is responsible for making sure it is paid off. In cases where fraud was committed, the victims can and should take legal action under existing laws–but there is no evidence that such cases are epidemic. Most of the defaults are due to the simple fact that many lenders and borrowers made risky loans. Some were betting on a never-ending real-estate boom. Some, observing the Fed’s longtime manipulation of interest rates to keep them artificially low, expected that their adjustable rate mortgages would stay low forever. Others did not carefully assess the contracts they signed–while certain lenders gave money without carefully analyzing the borrower’s finances. Still others were encouraged to buy homes, even when it didn’t make financial sense, by a government that believes home ownership is essential to the American Dream.
Given this range of factors, many people and institutions besides struggling borrowers and lenders–most notably, the federal government–bear responsibility for the mess. But the ultimate responsibility lies with the borrowers and lenders themselves. Any problems they have are their responsibility to remedy–just as any gains borrowers and lenders have made on risky subprime mortgages are theirs to keep. In the case of a mortgage borrower, taking responsibility might mean trying to find a lender who will pay off and renegotiate the old mortgage into a more manageable one. If such attempts fail, however, a person must accept the unfortunate consequences–for example, the borrower who loses his house and must live more modestly, or the lender who must take a large loss from a loan default. The only alternative is to make others pay for the consequences of his actions–which is exactly what all government attempts to “do something” necessarily do.
The government is not a savvy lender or mortgage expert able to contribute innovative financing strategies or new knowledge to the mortgage market. Its sole power, which all forms of “doing something” utilize, is the power to forcibly compel some people to give up their money or freedom for the sake of others.
Obama’s protestations that his particular plan does not reward irresponsible borrowers are, to put it simply, untrue. His plan is a more elaborate version of the Bush Administration’s Project Lifeline, which also claimed to offer a magic, fair way to keep millions of people in homes they simply cannot afford.) There is simply no such way.